The Taoiseach, Enda Kenny was in Cork this morning at the British-Irish Parliamentary Assembly and is reported to have expressed concerns that NAMA is selling property back to the original developers. The speech is not yet available online.
The Irish Independent reports the Taoiseach saying in relation to NAMA “I have had some indications of attempts to acquire property that was taken from developers through a variety of methods”
And he is reported to have said that he will meet Minister for Finance, Michael Noonan about this issue. Having not seen the speech, it is difficult to understand the context of these claims, which on the face of it are quite serious. And also just plain stupid. If Enda Kenny is trying to undermine confidence in a public body (and regardless of the sophisticated protestations, NAMA is a public body), then he is going about it in the right way.
Why on earth would the Taoiseach say in public, before senior Irish and British politicians, including some fromNorthern Irelandwho are particularly concerned about NAMA’s impact on their small local economy, why would Enda make serious allegations about NAMA? Shouldn’t he have consulted Minister for Finance, Michael Noonan BEFORE making such high profile public claims? Remember the Minister for Finance has a special legislative relationship with NAMA and can issue directions in accordance with the NAMA Act.
There have previously been allegations by Senator Mark Daly that NAMA was selling property back to people associated with the original developer below current market value. The senator has been challenged frequently to provide details. The senator enjoys privilege in the Seanad and has been challenged at least three times in that chamber to provide details, and has on each occasion refused. The senator reportedly met with NAMA and has apparently refused to provide NAMA with any details which the agency might investigate. The view on here of Senator Daly is not very positive because his allegations undermine confidence and yet all he has to do is provide an address (the property he is referring to is in theUK apparently) and the media and others can investigate his claims.
NAMA has not yet responded to An Taoiseach’s extraordinary speech today.The NAMA chairman, Frank Daly is tomorrow scheduled to address the same gathering in Cork that Taoiseach Kenny attended today.
UPDATE (1): 14th June, 2011. The Taoiseach’s extraordinary claims yesterday are increasingly looking like a gaffe. The Irish Examiner confirms the words used by the Taoiseach. It seems the claims were made to journalists on the fringe of the gathering yesterday; that said the Taoiseach’s speech is not yet available from the Taoiseach’s own website or from the Government’s communication website, merrionstreet.ie. A request for a copy of the speech from the Taoiseach’s office has been acknowledged but there has not yet been a substantive response.
UPDATE (2): 14th June, 2011. Apparently the Taoiseach is now satisfied by NAMA’s assurances today according to reporting at the Irish Times this evening, citing a spokesman for the Taoiseach. So in summary, the Taoiseach undermined confidence in a public body yesterday at a meeting in front of British MPs and Northern Irish MLAs, some of whom will have NAMA property in their constituencies. The Taoiseach publicly signals that he will involve Minister Noonan in investigating the murky claims. And the press run headlines like that in the Irish Examiner today suggesting skullduggery at NAMA with the Taoiseach’s imprimatur. What a needless and thoughtless gaffe.
UPDATE: 16th June, 2011. In the Seanad yesterday, the damage done by Enda Kenny was highlighted when it was pointed out that Senator Mark Daly’s frequent allegations of skullduggery at NAMA (which he has refused to detail even when speaking with parliamentary privilege in the Seanad) were supported by the Toaiseach. There was a terse exchange on the matter in the Seanad (available here).
UPDATE: 17th June, 2011. A NAMA spokesman has advised that NAMA adopts the following approach to deal with the prohibition of defaulting debtors buying back their own property.
” Under Section 172 (3) of the NAMA Act, there is a prohibition on a debtor who is in default on his loans from acquiring any legal or beneficial interest in the property which secured the loans concerned. NAMA points out to receivers acting on its behalf the restriction imposed on them by Section 172 (3).
In the case of property which is being sold by a receiver acting for NAMA, a purchaser is asked to make a sworn declaration that:
– he is an independent third party purchaser not connected in any way whatsoever with the vendor;
– he does not fall within any of the categories of persons contemplated by Section 172(3) of the NAMA Act;
– the agreed purchase price comprises the entire consideration for the property;
– the Contract for Sale comprises the entire agreement in respect of the purchase; and
– the terms of the Contract for Sale have been negotiated and agreed between the parties on an arm’s length, open market basis.
This approach tends to be adopted in the case of higher value disposals.In other cases, these points are incorporated as a special condition in the Contract for Sale and the purchaser, in signing the contract, warrants and confirms them. This approach is used, for example, in cases involving unit sales in a development. In the case of loan sales, wording is inserted into the sale agreement prohibiting (a) the involvement of any person contemplated by Section 172 and (b) prohibiting any disposal agreement between the loan purchaser and the debtor concerned.”
NAMA Wine Lake 
Perhaps this is a classic example of Bertie-speak; are THEY doing this ?
@Eric, you’ve lost me (much like Bertie Ahern used to whenever he opened his mouth!). What do you mean?
1) Nama takes over roll of bank
2) Deals with Developer directly
3) Developer can’t pay back loan – so NAMA takes the underlying asset (Didn’t think the developer was off the hook at this stage though)
Here is where things get confusing for me:
4) Developer wants to buy back the land AGAIN?
a) Why? Wasn’t it that asset whcih got him into trouble in the first place?
b)How is he able to raise finance to buy it? Surely he would be precluded from new borrowings from an Irish bank if he still owes NAMA money? (I am naive?)
@Rob, Developer A owns Company A . Company A is a limited company and Developer A didn’t give personal guarantees. Company A has a loan on a property and can’t now repay the loan. NAMA takes back all the assets of Company A. It then goes to sell the property and Developer A is still quite wealthy and offers to buy it. Now the NAMA Act prevents some types of sale but it is unclear if Developer A can buy back the property. What if Developer A is a shareholder in Company B? What if company B is British Land or some other giant where Developer A has €10 of shares. This is a tricky area.
But the upshot is that Developer A may have wealth remaining which NAMA can’t touch. That would be an answer to b)
As for a), the property might not have been financially viable at its original value or indeed loan value, but it might be viable at its present market value.
@NWL
The corporate limited liability structure is indeed a great friend of the well to do.
Now if the developer has private funds outside the corporate structure, would it be in order for the ODCE to ask him or her, men and women of great genius, how they managed to run the company onto the rocks at great expense to State, bank, subcontractors, employees ,while amassing considerable wealth.
And as to whether they continued to trade while hopelessly insolvent, an action which is referred to as reckless trading in the Companies Act.?
Further if the only buyers that NAMA can find are the ones that ran the businesses into the ground, then one has to be very suspicios of how hard NAMA has looked for buyers.
4a) is spot on, and can be extended with:
4b) is this being financed by NAMA itself ? If so, why isn’t the financing and the property deal available to the general public?
@Stephen, NAMA has committed itself to comply with the the 2009 Code of Practice for the Governance of State Agencies (available here http://www.onegov.ie/eng/Publications/New_Code_of_Practise_for_State_Agencies.pdf) when NAMA is selling real property.
When NAMA sells a loan it must comply with its code of practice for the Disposal of Bank Assets (available here – http://www.nama.ie/Publications/2010/CodesofPracticeDisposalofBankAssets.pdf)
However before NAMA forecloses on a property, a developer may sell a property under NAMA’s auspices, and there doesn’t appear to be any code for such a situation. And to date, that has been the typical situation. You would expect NAMA to apply the same codes to any transaction as if it was NAMA that was directly selling the property. If NAMA hasn’t then the agency should be concerned.
Exactly my point, thank you. What the heck is Enda doing pontificating in public and bemoaning THEIR actions ? He’s the man. He’s the one who can do something about this. Just like Bertie was when he spoke of THEY, THEM and so on. Do I miss my mark but over the weekend do I correctly recall the late Brian Lenihan having been quoted as remarking upon Bertie’s ability to address government actions in the third person plural ? In (not so) short, has Enda caught the Bertie Syndrome ? E.
@Eric, I see, yes it does look gauche to say the least that the Taoiseach would so publicly create doubt in what is effectively a public institution (and not just nudge-nudge, the NAMA Act does confer very intrusive powers on Minister Noonan). That said, am trying to get the speech from the Department of An Taoiseach though it is unclear if the comments were made during the formal speech or to journalists on the fringes.
I think it was case of Enda losing the run of himself as there is no doubt NAMA would never knowingly sell to the previous equity. NAMA are really only interested in selling to foreigners!
I certainly hope we won’t stop the original developer purchasing the asset back if he is offering the best price.
Nose.Spite.Face. etc
@Rob, I would tend to agree with you but both the NAMA Act and previous ministerial commitments and public NAMA pronouncements, prevent NAMA from selling to the original developer.
“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.” https://namawinelake.wordpress.com/2010/11/18/nama-to-be-grilled-this-morning-by-pac/
You could offer the best price too if most of your loans were written off. No wonder the developers were so in favour of a bad bank run by the state. Please correct me if I’m reading it wrong – I hope I am.
Enda’s outburst shows a lack of professionalism, but at least his heart is arguably in the right place if he’s trying to stop fast bucks being made at the tax payer’s expense. I think openness might be preferable to tight lipped professionalism.
Whether formal or otherwise, it makes little difference though of course it would be useful to see the full speech if that is the relevant tract. To some extent this episode lets the cat out of the bag on NAMA in that it was seen by some persons, I suggest, as a way to succour and then revive the “property market”. Much as there is merit in the proposition that NAMA should indeed act as a type of bank, a lending institution at least, Rob S may indeed have gotten to the heart of it.
It is a bit off-point to say this, I know but nevertheless it is interesting, I suggest, to reflect upon our eleven Companies Acts, each one representing one more attempt to avert the “Phoenix Syndrome”. These acts impose quite onerous regulatory requirements upon even the smallest private companies and yet and if Rob S is correct – he is not at all naive in my humble opinion – they have failed to do so at least insofar as our half-a-brain developers are concerned.
Putting this another way, NAMA seems not to perceive to any obligation to uphold public policy in the matter of the privileged nature of limited liability.
Until such time as our State guarantees a level playing pitch in all commercial matters, that is, by demanding abject respect for all statutory requirements, we will never enjoy a fulsome prosperity.
More to the point, absent strict enforcement of our Company Law, we remain in danger of a recurrence of the conduct and circumstances which brought us to our present predicament. It is very difficult to see how any of these half-a-brains could legitimately aspire to the maintenance of the Corporate Veil.
I have stated “ab initio” that this Rule of not allowing the original borrower or developer the same right as anyone else, i.e. the right to buy any asset, including his own, at the prevailing open market price was a non-runner. It is impossible to police it.
However, why some of them would want to buy their “assets” back……??
Frank Daly is tomorrow scheduled to address the same gathering in Cork that Taoiseach Kenny attended today.
Sorry…. but…. ROFLMAO! :-)
Developers wouldn’t just own the land – in many cases they would have sunk costs into planning applications, drawings and so on for sites either undeveloped or yet to have their original structures demolished. If they don’t own the land any more those are worthless. Accordingly, the original developer’s sense of what land is worth is not the same as the new buyer who has to start more or less from scratch, depending on what stage of development the lands are at, as the developer himself would since these plans would be largely worthless in an alternative site.
Mark
Planning permission when granted for a property lies with the property for the duration of the permission usually 5 years – not with the applicant. ‘Ownership’ is irrelevant – apart from the freeholder having to grant permission for a party to make an application initially.
The second part of your point makes no sense what so ever.
Joe.
@NWL
Sure thing but they are also mandated with getting the best return possible for the taxpayer.
I would have though this was more important
@Rob, no, NAMA will potentially cut off its nose to spite its (profit maximisation) face and has confirmed its interpretation of the NAMA Act and ministerial commitments on a number of occasions eg at the PAC last year “(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.”
https://namawinelake.wordpress.com/2010/11/18/nama-to-be-grilled-this-morning-by-pac/
The political view is that developers should not be seen to be buying back their property when the State has incurred an overall loss with their loan. There was a “Dear Deirdre” dilemma posting on here where I think most angles to the debate were aired, particularly in the comments
https://namawinelake.wordpress.com/2010/09/15/can-nama-sell-loans-and-assets-back-to-the-same-developers-who-obtained-the-loan-and-if-it-can-can-it-sell-at-a-discount-and-if-it-can-should-it/
Thanks, I missed that post – will read the substantial comments!
It does seem perverse to have the taxpayers lose money in order to punish those who forced the taxpayer to lose money!
The original borrower could raise equity from third parties, and depending on the assets and who those third party equity providers are potentiallly debt finance – the fact that the developer has assets which have gone bust doesn’t nec preclude them from raising new finance, if they are still a creditable developer and their assets are good they could get credit. Of course post a recap the original developer/borrower will only have a smallish equity stake. Sometimes selling back to the original borrower is the best thing to do, they know the assets best and may be able to offer the best price, and if they can they should buy it. I’ve seen this happen in the UK without any fuss.
@DCB:
We are led by academics, The practicalities of commerce does not enter into their lives. In the end it will be as you say because that is the reality if the assets are to be sold for a decent price and not disposed of to the vulture funds at a pittance. Those same VFs will just turn around and sell them for a profit to the original borrowers, because that is what they do. As they have said to me – “The last thing we want is to be left with the asset”.
However, our leaders and the media still have a long way to go before that reality is accepted. Unfortunately, they are still in the learning process.
While he is in New York, Minister Noonan should call in to the CRE Finance Council’s conference in the Waldorf Astoria. He would receive a quick education (as well as meeting over 1.000 funders). They would explain the realities of the marketplace to him.
http://www.crefc.org/microsite.aspx?id=19416
“One is happenstance, twice is coincidence, three times is enemy action.” If another of these allegations comes up again, we’ll know that Nama is is a very Irish Enterprise.
Here’s my current understanding of what’s going on at Nama. This is genuinely what I have been able to follow amidst the confusion:
———————————————–
1) Property bubble bursts. Developers owe billions to the banks with no way to pay it back. Banks facing insolvency, and are threatening to put the squeeze on developers.
2) Nama set up, ostensibly to bail out the banks, in reality to bail out the developers. It takes the banks loans off their hands and gives them a discounted loan via Nama bonds. Once the bank, i.e. once the developer, has paid off this discounted amount and not the full loan, everyone will be satisfied and the developers remaining debt will be written off.
3) Nama, now in charge of the loans, takes a hands off approach to developers in the meantime. It allows them to transfer their assets to complicit spouses and various companies they control. The developers indebted companies are stripped of assets or left fallow. This situation continues for approx. two years,
4) Finally, having been stripped, developers’ companies with outstanding loans are taken into receivership by Nama and what remains of them is liquidated. The underlying properties are appropriated by Nama and the liquidated companies are written off.
5) The developers, via their partnered spouses and other companies, now proceed to buy seized property assets from Nama(Not necessarily the same ones they previously owned, but perhaps). Nama in addition moves to provide its own private financing to enable Irish developers to buy up its seized assets. Nama makes a mild loss of slight profit on the sale. The developer/developer-spouse can potentially make a profit on the entire seizure/buyback operation.
6) Meanwhile the Irish Banks are entirely insolvent and require massive capitalisation anyway. Nama itself may require capitalisation down the road. However, as an operation to bail out Irish developers, Nama is a roaring success.
———————————————–
That’s my current understanding of Nama as it has operated over the past two years. While its mission briefs and press statements will obviously disagree, this is my assessment of the _outcome_ of Nama policies over since its inception and indeed before that. I’m sure this can all be ammended with discussion of the banks, and markets, and investors, and etc, etc, but I think that’s the gist of it.
@DCB Selling to the original borrower ? There is something wrong with the way the NAMA does its work if it cannot prevail upon that person to bring their all in aid of a least worst outcome on a given asset absent a renewal of proprietory interest. Generally speaking, we should not fuss when one capitalist does a deal with another. But when the parties have been bailed out at Public expense and at great cost besides and when that expense is allowed to comprise a discount on former stupidity, that is certainly a cause for plenty of fuss. These borrowers have no part of the solution to any problem confronting us currently. There are plenty of able people about who can harness the subject assets and bring them to their optimum.
Chairman Daly on RTE Radio 1 this lunchtime gave the firmest and most comprehensive assurance that exclusion of erstwhile borrowers is an essential of their working, whether directly or through receivers and other practitioners, enforced by means of contracts and other devices.
Which brings us back to the initiating thought; What exactly was the Taoiseach on about yesterday ? It is now a little more difficult to believe the Ship of State yet has a firmer hand on the tiller than was the case on that fateful early morning in September 2008. No matter how dedicated or able Mr. Daly and his colleagues are, any State agency responsible for €30b of our hard-earned is deserving of the most intense scrutiny and understanding at the highest level of Government.
@Eric, the precise words spoken by Frank Daly on the RTE News at One programme today
“I can assure the Taoiseach and everybody else that NAMA is absolutely determined that properties will not be sold back to defaulting debtors. We have a very strong piece of legislation in the NAMA Act to help us in that regard, that is the prohibition in fact of properties being sold back to the defaulting debtors and NAMA is absolutely determined to enforce that prohibition. We have no indication that it has happened so far and we’re absolutely determined that it won’t happen in the future.”
http://www.rte.ie/news/2011/0614/nama-business.html#video
There is the possibility that Company A might default but if Developer A is only a shareholder of Company A, perhaps he can still buy the property.
@OMF:
“One is happenstance, twice is coincidence, three times is enemy action.” If another of these allegations comes up again, we’ll know that Nama is is a very Irish Enterprise.
Let anyone substantiate the allegations with just one example – please.
It is accepted by most people who have been through these events before (like the RTC), that the best purchaser is the borrower who has negotiated and raised new funding to take the loan off the “bad bank”. They are the people with the most incentive to pay market value. The worst purchaser is the borrower with no new funding. Close behind are the vulture funds, who buy at distressed levels and “flip” the asset – normally to the borrower. The public are generally not buyers of large scale property assets. They are buyers of foreclosed residential units and small investments.
If Michael Noonan is serious about generating income in NAMA quickly, he has no real alternative but to deal with those existing borrowers who refinance their assets, other than to sell at a deep discount to the vulture funds.
P.S> I exclude London, USA and “trophy” assets from that last comment.
@NWL
Yes and that passage, taken alone would certainly leave unresolved the prospect to which you refer. But on the radio version, I hope I report correctly, the Chairman also referred to contractual undertakings and also to some form of sworn undertakings in the matter of the identity of purchasers and, being fair about it, he went on to instance certain classes of related persons who were not in prospect of Agency’s contracting with them. Receivers and others were, up front and repeatedly (I paraphrase) told of the Agency’s requirements in this regard.
Ouch ! Did I just defend NAMA ? I’ll have to take an extra tablet this evening. Seriously though, either we have a problem or we do not in this regard. If we have then it is a matter of utmost seriousness. But if we do not then and since NAMA must be subject to effective and imaginative political direction if it is to aid the recovery process, the Taoiseach’s remarks are a cause for great alarm.
Either he knows what’s going on or we must then move on and ask who the heck is minding the shop.