Now how ridiculous would that be? And of course it’s rubbish. What happened instead was, for a NAMA review, we engaged a 58-year old, seemingly unemployed Englishman who left HSBC in September 2010 after a reported tiff when he failed to get the chairman’s job after intense lobbying against his appointment by shareholders. Though there was some dispute about the reasons for Michael Geoghegan’s departure from HSBC, since September 2010, he had been apparently kicking around the place, until our own Minister for Finance, Michael Noonan seemingly gave him the call to conduct a review of NAMA in September 2011.
Indeed such is confusion around the origins of ex-HSBC chief executive’s review of NAMA that we still don’t know who initiated the review – Minister for Finance, Michael Noonan, NAMA itself, or some individual like ex-NAMA director Peter Stewart who has intimated he was instrumental in the decision to have a review.
But this is Ireland, and Fine Gael has continued the Fianna Fail tradition of stuffing state-funded institutions with its own annointees without advertisement or competition. And so Michael was appointed. He conducted his review between 26th September 2011 and 10th October 2011 and subsequently gave his now famous “oral presentation” to NAMA and Minister Noonan – it’s “famous” because when the Committee of Public Accounts tried to quiz NAMA on the review at the end of October, politician after politician was fobbed off by NAMA chairman Frank Daly who said “there is not a written report, as such. I am not holding back a report from the committee.”
Yesterday NAMA published the Geoghegan review – apparently Michael typed up his musings/findings in recent days – after some leaks emerged earlier in the week. NAMA has also provided its reaction to the review. Here’s the reaction on here:
(1) The single biggest failing in this report is that the musings and recommendations of the reviewer are, in general, not backed up with rationale. “I’m Michael Geoghegan, sure why would I need justify myself” seems to be the approach adopted. So these “Tablets of Stone” are supposed to be accepted without challenge, it seems. Just as Moses didn’t get any justification from God for not coveting his neighbour’s wife, we don’t get any justification for Michael’s recommendation that there be three executive directors – why not four, or five? Most recommendations in the report have no accompanying rationale given.
(2) Because the review takes a “Tablets of Stone” approach, it follows that there is no feedback from NAMA to the recommendations. For example, why does NAMA have a part-time Chief Financial Officer? Is it because Brendan McDonagh has such expertise in the financial and accounting arena that all he requires is a part-time role covered by a NTMA senior financial person? Brendan is a fellow of the Chartered Institute of Management Accountants and has had a lengthy chief financial officer type career at the NTMA.
(3) The review’s terms of reference are so vague as to undermine the credibility of the reviewer. His first term of reference is “a high level review of how NAMA is organised functionally”. What is the objective of such a review? Presumably it’s to ensure NAMA is organised in an optimal way to deliver its own objectives as set out in the NAMA Act. But then you would expect some appreciation of these objectives and some comments where the current organisation was sub-optimal. What Michael presents as “terms of reference” are more akin to elevator pitches of plots for Hollywood movies. And because there is practically no detail, it is difficult to assess whether or not Michael delivered on the terms of reference. Given his imminent senior role on the NAMA “Advisory Group”, it would have been nice to see if this former banker can deliver on objectives.
(4) The report makes at least two references to the claim that Michael carried out the review “pro-bono”, that is to say for no reward. NAMA has not commented on whether or not expenses were paid. Regardless, the report has a cost because it interfered in NAMA’s day-to-day operations by absorbing the time for 36 interviews with Michael. The NAMA board also felt obliged to sit through a presentation of Michael’s musings and conclusions.
(5) How well is NAMA actually doing in its asset management phase? The report seems to suggest there are competency issues at NAMA and that there are failings but at the outset says “I make no comment on any commercial or other approaches or decisions made by NAMA”. The perspective on here is we don’t have enough information to form a view on NAMA’s performance in this asset management phase. At one end of the spectrum, NAMA seems to have scored a bulls-eye with selling the Maybourne loans for €800m – the face value of the loans and which NAMA says could not have been bettered. On the other we have a mish-mash of suggestions of intrigue and innuendo that NAMA has not got the best price on other assets. There is nothing in the report to judge whether NAMA is doing a good job during this phase.
(6) Michael seems to have been strongly influenced by his institutionalisation over 37 years at HSBC where the role of chairman was more an executive role than it is in other institutions. Michael seems to recommend in many instances that it be the chairman of NAMA that approves important decisions. Unlike HSBC though, in NAMA, it is plainly the €430,000 a year chief executive Brendan McDonagh who is the hands-on executive whilst the €153,000-a-year chairman Frank Daly is more the traditional chairman and ambassador for the Agency.
(7) And speaking of remuneration, it is the recommendation of Michael that NAMA should introduce a “robust long term plan modelled on the private sector rather than public sector incentives”. So what salaries can we expect to see at NAMA? The chief executive of BlackRock asset management group, Larry Fink, gets €20m per year. Is that what the State should be paying Brendan McDonagh?
(8) British CBE recipient, Michael comes across as an arrogant little sh*t in this report. This blow-in graciously emphasises that NAMA “has no obligation to accept any or all of the said recommendations”. And in his conclusion, he suggests that NAMA might find itself effectively liquidated with its operations handed over to “one or more third parties to manage” if it fails to deliver on self-imposed debt repayment targets. Puts you in mind of the Fine Gael General Election position of farming NAMA’s operations out to 2-3 external asset managers, now doesn’t it?
(9) Michael conducted 36 interviews before committing to his musings. There isn’t a list of the interviewees at the 36 interviews but the report says it limited itself to interviewing “board members, senior executives, certain other middle management, supporting offices and both internal and external auditors” No external asset managers, no bankers, no developers, no investors. This seems like a major failing in the review, unless the bould Michael thinks his cumulative personal experience obviates any need to consult beyond NAMA and its auditors. The shareholders at HSBC didn’t seem so certain.
(10) The creation of an “Advisory Group” which reports to Minister for Finance, Michael Noonan is a worrying development and seems to herald greater political interference in NAMA. The Minister already has an “Advisory Group” – it’s called the Department of Finance which liaises with and oversees NAMA. And while we might all scoff at the notion that NAMA is independent of the political bear-it, the Agency does in fact enjoy a degree of autonomy granted to it under the NAMA Act. This is set to change. The Minister has announced that he will draft a so-called “Direction” pursuant to the NAMA Act to force NAMA to cooperate with the external “Advisory Group”, something which interestingly wasn’t required in September to get NAMA staff to cooperate with the Geoghegan review.
NAMA itself has reacted to the report with grace through gritted teeth, selecting the positives from the review and offering its cooperation with any initiative to ensure the Agency meets its objectives.
Lastly, and because it was extensively reported in the media, the suggestion that NAMA is sold off is limited to a passing remark that towards the end of NAMA’s anticipated lifespan – 2017-2019 according to the review – consideration be given to selling the rump of the organisation. This hardly justifies the “NAMA may be sold off” headlines.
NAMA Wine Lake 
Through the various references to bringing work inhouse, setting up new units, hiring more internal staff, an internal HR function, etc the report gave me the impression that Michael feels a small empire should be built. An empire he now happens to have a large role in.
I’m happy to be corrected on this but was it not the case that NAMA was intended to be a (relatively) small unit which did the essentials itself, contracted out the rest and could be easily disbanded when the time comes? As you’ve mentioned, he produces no evidence that a larger organisation would achieve NAMA’s goals more efficiently or cheaply.
Nice little gig to rehabilate a shredded reputation,where was Mike for the fun and frolics with sub prime at HSBC.NAMA by asset base/cost is still one largest RE companies in the word.Quite a feather in his cap,was the job advertised ?
http://news.sky.com/home/business/article/1307645
@JG
Those brilliant sub-primes bets have apparently done a number on HSBC’s US retail business strategy. Out is the word.
http://www.hsbcusa.com/ourcompany/pressroom/2011/news_07312011_branch_sale.html
Few comments NWL
– Good analysis as usual, the bulk of which I would agree with. I feel your “blow ins” comment is a low blow (pardon the pun) and unnessary. You may not respect Mr Geoghan but I doo not see an issue with getting someone from outside of the jurisdiction and irish banking circles to do a review, in fact it makes perfect sense.
– I thought he made a good suggestion re transferring a tranche of cases c 1-200 m to another agenecy and comparing the results with NAMA management of a similar portfolio; as you stated he has not backed up how this would work in practise. I would imagine Certus would be very keen to try their luck at this.
– Suggestion to take on 200 more staff at 25 m (125 k a head!!) to manage the remaining 600 clients and save the fees paid to the banks of 74 m makes sense, and should be easily managed. If you only had 100 new portfolio managers it would be 6 connections each, not onerous. I would guess than NAMA does not have the back office capability to deal with this at the moment and the actual back office work would still need to be outsourced, may be no bad thing.
@DG, the “blow-in” reference is not about jurisdictions in the national sense. Whatever you might think about NAMA and its senior personnel, it seems accepted by all including detractors who have dealt with NAMA, that the Agency has gone about its business with diligence and put in hard work and long hours. It’s not as if senior management don’t have asset management/banking or property (or other relevant experience and most of these people have been living NAMA for two years – 75 hours a week, reportedly, in the case of Brendan McDonagh.
In that sense Michael Geoghegan is a blow-in, a term I particularly like in respect of NAMA, because the open expanse in front of the NAMA building seems to attract mini-cyclones whenever I have visited.
Bit off topic but just reporting that I recently wrote to the Comptroller and Auditor General and followed up with the Public Accounts Committee about the need, in interests of openness and transparency, for Nama to produce annual pro-forma accounts based on the par value of loans acquired and accounting for all rolled up and/or written down/off interest.
Details at:
http://www.planware.org/briansblog/2011/11/namas-accounting-methods.html
@DG what is his expertise in running a large real estate company,their foray into sub prime lending was a unmitigated disaster,financially and morally. If he is such a ‘hot shot’ why is he not gainfully employed ?
Oh hold on,he just created a job for himself.
transferring assets-how is that measured,outside agency will throw best and brightest on it,we would actually lose money on the assignment,to embarrass the NAMA in house staff,and get further work.How do you possibly measure ‘performance’ with so many variables involved.
Where do you find 200 people with that level of expertise ?
More importantly why on earth would anyone with ‘clean hands’ and expertise want to work for NAMA or Mike-they ran him out of his last place.
The big question is who is NAMA,what do people in Ireland want it to be.
“May I have your attention please?
May I have your attention please?
Will the real Slim Shady please stand up?
I repeat, will the real Slim Shady please stand up?
We’re gonna have a problem here..
@JG
I know very little about Mike Geoghan, just thought the ‘blow in’ comment was a cheap shot and unnecessary.
So let me get this straight, you dont agree with NAMA, but you are unwilling to find a way to test if there is another agency capable of managing the portfolio better? Im confused?
Re the 200 people, well if you just took 200 that are curently managing them in AIB/BOI etc and trasnferred them into NAMA now for 25 m and let them at it your ahead of the 75 m agency fee we are paying the Banks as is, and you are maintaining the ‘status quo’ on the quality of case management; whether it is good enough or not is another question, and I would tend to agree, it probably is not.
another one for the ‘conspiratorial theorists’ out there!
Mike must have disclosed this ongoing investigation,can we have a statement that he is NOT subject of any ongoing inquiries!!!
NAMA must be a nice break from this,there is lots in cyberspace,linked a few of the less sensational ones.
“The Justice Department’s money-laundering probe against banking giant HSBC Holdings Plc is looking at possible prosecution of individual bankers, a source close to the investigation said on Thursday.
The source, who has direct knowledge of the probe which was disclosed last year, said it is moving slowly in part because of the close examination for potential individual prosecutions. He did not name any targeted individuals.
In a November filing with the Securities and Exchange Commission, HSBC stated that it remained “the subject of ongoing inquiries, including grand jury subpoenas and other requests for information, by government agencies, including the US Attorney’s Office and the U.S. Department of Justice.”
http://www.reuters.com/article/2011/05/06/us-banking-hsbc-idUSTRE7451Z120110506
‘Federal agents caught people who work for Mexican cartels depositing illicit funds in Bank of America accounts in Atlanta, Chicago and Brownsville, Texas, from 2002 to 2009. Mexican drug dealers used shell companies to open accounts at London-based HSBC Holdings Plc, Europe’s biggest bank by assets, an investigation by the Mexican Finance Ministry found.’
http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html
‘In August 2010, it emerged in quarterly disclosures by HSBC that the US justice department was seeking to fine it for anti-money laundering compliance problems reported to include dealings with Mexico.’
http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs
http://www.prnewschannel.com/2011/09/27/whistleblower-fears-for-his-safety-after-accusing-hsbc-of-money-laundering-bank-fraud-in-new-book/
@DG personally no time for Mike, that’s correct.
NAMA have no idea who they are any more, what is their purpose,but his recommendations are flawed and self serving.Typically the Irish press are fawning all over him,like some second coming,it started with a load of BS regarding ‘oral’-and has continued.
The point is NO ONE is ‘managing’ them,turnaround adding value is extremely complex to scale up.They are lenders not asset managers or value added guys.His whole premise ignored the original borrowers.
@ JG, fair enough, still think despite your misgivings that there were some valid points in the report.
Your tone is all wrong, and uncharacteristically so. Hateful and judgemental.
An external review is no harm. I cannot be the only one who was worried that NAMA was being put under pressure to offload its portfolio with undue haste.
I agree that the presentation of an oral report to he board and minister was bizarre. Also agree that the report is lacking in rationale at many points.
I can well understand why the report was done without a fee. Previous reports to government advising on strategy have been followed up with a populist newspaper report of the ‘exorbitant cost’ of the report even where that cost is below market rate. Nobody likes to be publicly pilloried.
The scope is not that strange for this kind of report. It’s normal that Noonan, with his new brief and his predecessor deceased, needs a report from an outsider to describe the functional organisation of NAMA.
There is a real risk that NAMA will become more like CIE than NTMA. Political interference may lead to a misalignment of goals from long term performance towards short term political expediency. The national debt was mismanaged at a cost of billions to he state before the NTMA was created and allowed to hire market professionals – rather than tweedy civil servants – to manage our money.
NWL,
Mr. Geoghegan’s qualification or assessment of NAMA and its organisational structure is a trivial matter. The major question is what is Mr. Daly’s agenda? Is Mr. Daly is attempting to form or reform NAMA’s strategy/remit or is Mr. Daly trying evaluate the quality of NAMA? These are not mutually exclusive objectives but I cannot tell from Mr. Daly’s comments what was the purpose of Geoghegan’s Sermon on the Mount. Presumably, the Geoghegan sermon is one of a number of inputs to Mr. Daly’s analysis. Relying on a single ‘expert’ may be expeditious but short-sighted. Let Mr. Daly debate NAMA’s future and capability and strategy in public.
I love the NWL blog.
@KD they caused untold misery to many unsophisticated people,they kick-started sub-prime, devastated many many peoples lives. Would rather leave the room that listen to anyone involved in predatory lending.
“The merger established that lending to subprime customers was a respectable business. Finance companies like Household and its corporate sister, Beneficial, had long had slightly disreputable reputations. They lent money to homeowners who could not get financing from normal banks, and they engaged in collection methods that might seem aggressive to more timid financiers.’
‘This week, HSBC conceded defeat. It will close the remaining 800 offices of Beneficial and Household Financial, and it will stop making loans. “With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” Michael F. Geoghegan, HSBC’s chief executive, understated’
HSBC, he says, “provided the assurance that got this subprime mortgage thing really rocking. They are who you should blame.”
http://www.nytimes.com/2009/03/06/business/economy/06norris.html
@KD we fundamentally disagree,first of all Noonan is NOT the right person nor the best qualified for the job,she is often refereed to as the ‘good lady’ that was shafted on here.Noonan just compounded his incompetence with this entire ‘oral’ fiasco,does someone at NAMA or DofF have an oral fixation that we need to know about !!
What other 70 bill. company would embroil itself in such a circus,its oral…eh no its not..i ordered it ..no i did…..no it was me………..who did…oh look its written down.
And eh by the way ‘giz a job’
@NWL apologies,JR posted regarding Anglo earlier,but can not find it.
Anyway,JR this is hitting the wires here in NY,may be old news in Ireland,says he was picked up this morning.
‘Former Anglo Irish Bank chief Seán FitzPatrick has been arrested as part of an ongoing investigation into alleged financial irregularities at a financial institution.’
http://www.rte.ie/news/2011/1209/bray.html
Oh dear, poor Mr Geoghegan. And he hasn’t even started yet. Just parachuted in by Michael Noonan and the Fine Gael inner kitchen to knife Frank and Brendan and put them out of their misery within the next couple of months and he gets a frosty reception! I’ll need to do a radical rethink. He didn’t even make my draft list for asshole of the year. Mind you, surprisingly neither did NAMA – although they came close.
No, my final five this year include the HSE for the John Charles McQuaid cover-up (he doesn’t deserve the title of Cardinal); Michael Noonan for paying the Anglo unsecured bondholders, and Justice Minister Shatter, who should have known better than to make promises that he knew he couldn’t keep – and if he didn’t know what any first year law student would know, then he’s in the wrong job. The final two on my short list are personal. In the Sicilian manner I’m waiting in the long grass for them.
Have to say my “hero of the year” is David Cameron. He stood alone against 26 (or 23 if you want to be pedantic) and “flipped them the bird”. That took cojones, Dave! More courage than we could demonstrate. Kudos.