“We’ve had a major incident and there is a showdown coming between Brendan McDonagh [the CEO of NAMA] and the public accounts committee. On 26th October, he was in at the public accounts committee and I asked him a straightforward question – “you have a figure of €448m in the accounts for interest received in the course of 2010, how much of that was received and how much of that was not received by the end of the year” – and over three months on after four requests by the public accounts committee, he has not yet answered that question. He has tried to fob it off. So Brendan McDonagh is heading for a direct confrontation with the PAC and the PAC won’t lose on this one because we are there on behalf of the Irish people. Brendan McDonagh is a public official when all is said and done. And he has stonewalled, so he is not being accountable and he is specifically required under the legislation to be accountable. So there is a bit of a showdown coming on that.” Fianna Fail TD Sean Fleming speaking on Tonight with Vincent Browne on 2nd February, 2012
Here’s a maths teaser for you. Consider the following problem. You are owed €74bn in loans. Only 21% of the loans are performing. You get an average of 3.5% interest per annum on the loans. How much would you expect to receive over a three month period? Okay, it’s Friday so here’s the arithmetic – €74bn * 0.21 * (3 mths/12 mths) * 0.035. Which equals €136m.
Now NAMA just happens to have €74bn of loans. NAMA says 21% of the loans are performing. NAMA previously said in April 2010 that the average interest rate on its loans was 3% but ECB rates went up 0.5% since then and only fell by 0.5% in the final quarter of 2011. So you would expect NAMA to show interest income of about €136m in its latest quarterly accounts for Q3,2011.
Instead the Agency shows €255m. Now you might suggest that maybe developers only pay interest half yearly or yearly. But the Q2, 2011 interest income was also reported to have been €255m and the Q1, 2011 interest was €276m – you’ll see the analysis in the table at the end of this blogpost.
What’s going on? I honestly don’t know. But chartered accountant and Fianna Fail TD Sean Fleming also seems confused and asked NAMA about its method for calculating interest when the Agency appeared before the Committee of Public Accounts in October 2010. In fairness to NAMA – and contrary to the claim last night that NAMA had not responded to Committee letters – there is in fact a letter from the Agency to the Committee on 15th December 2011 which is examined here and NAMA says it applies internationally recognised accounting standards in calculating interest due. But despite that letter, it remains unclear how much interest was payable and paid by developers in 2010.
Obviously Deputy Fleming is not going to let the matter slide and NAMA can expect some further robust questioning when it is next summoned to appear before the committee.
Last night’s Vincent Browne show was supposed to focus on NAMA, which is certainly a large property asset management company, but contrary to claims in some quarters, is nowhere near the world’s biggest. Even in Ireland, Certus and loan portfolios at Ulster Bank and legacy loans at state-guaranteed banks are of similar size. Separately, Deputy Peter Mathews forecasts that NAMA will make a loss of “upwards of €5bn over its lifetime” and journalist Gavin Sheridan is still on the periphery of a fight to get NAMA to provide information pursuant to an environmental information piece of legislation. There is no update as to when NAMA will be encompassed by Freedom of Information legislation, and indeed I don’t even know if such a move will materially affect the information provided by NAMA, because of NAMA’s confidentiality constraints imposed by the NAMA Act. The disgrace and political failure is that NAMA is disposing of an average of €500m of loans/property (by reference to face values of loans) a month EVERY MONTH, and we know next to nothing about the disposals. If NAMA was selling second-hand cars, we would know more and understand more about its operations and performance. But apparently the management of multi billion property portfolios means we are kept in the dark, to a large extent.
NAMA Wine Lake 
That’s very interesting….
Sean Fleming is certainly on the case. Here is an extract from the PAC meeting on 12th January:
Chairman:
…….
Correspondence dated 4 January 2012 received from Mr. Brendan McDonagh, chief executive of NAMA, in response to correspondence forwarded by the committee from Mr. Brian Flanagan in regard to NAMA’s accounts, to be noted and published. A copy of the correspondence will issue to Mr. Flanagan.
Deputy Sean Fleming:
I ask that be put on the agenda the next day. The interest on the NAMA loans comes under that topic.
The background on this was covered by NWL on 23rd January and in more detail on my blog at http://www.planware.org/briansblog/2012/01/nama-additional-disclosures-based-on-par-value-of-loans.html
What seems to be happing is that NAMA is charging interest, paying it from an “interest arrears” account and then paying off the “Interest arrears” account from a “capital arrears” account.
So we are all up to date with interest then – what’s the fuss about! QED
@WSTT
Neat! Some wheez!. They wouldn’t, would they?
If you are correct, then the NAMA reply was ‘genius’ itself.
“NAMA says it applies internationally recognised accounting standards in calculating interest due”.
Nothing wrong with that. It is just not the full picture.
The above reference is to charges on non-performing loans, so that they appear to be income producing. The interest is “paid”, but the capital loss builds silently in the background.
@WSTT did you seriously engage with NY hedge funds,w/o growth in the economy via debt forgiveness/ write off principal the RE is correlated.
Hotels/Tourism we like Greece post Euro… devalued drachma….it will boom.
‘Smart” or smarmy swarthy money is in tourist play in Greece.
@jg, I’ve met hedge funds represented by fellas with Mohair suits, perma-tans, gym-induced biceps, lunch-induced bellies, little round caps, big hats, hair newly planted like rows of corn, no hair, ex-baseball stars, football fanatics, gays, lesbians, even straight…. you name it, I’ve met them.
The common consensus is – NAMA’s in denial; their price expectations are unrealistic; there’s little point in talking with them; the assets will be bought much cheaper when the market deteriorates further and the NAMA hierarchy come to their senses; the euro is a mess; Ireland may not remain in the eurozone; the country is being drained of its young people; there are two generations of austerity to come; why would anyone stay to pay the debt burden that this generation has imposed on them….etc, John. You’ve heard it all before.
The one thing that they all agree on is that the only way out is to default. And as with all New Yorkers, who like to get on with it, they just can’t figure out why we did not do it in the first place and what is holding us back now.
@WSTT a lot of that is above me,all I can report is that the guys who get it,are investing in Greek tourist related stuff.We think thats a nice place for our dollars,seriously not joking Ireland is just not on the menu.
Word is Greece gets kicked out euro,drachma goes to shit,tourism booms.
We want to own the hotels,resorts……..very very compelling story,I can’t or won’t pitch Ireland,what is it,recovery play….seriously what’s the pitch.
@jg, that’s the point I was making, John. Nobody is intersted. It’s a tough sell. NAMA is selling overpriced “fool’s gold”. Everyone sees that except NAMA and for every 100 people who will invest in the USA, 3 will look at London and none want Ireland.
@ Joseph, Just re-checked. It seems that they are not that bright. What is happening is that NAMA charges the interest then pays it into the main account from a newly created “interest arrears” account. It then returns it in a circular transaction back to the “interest arrears” account.
This enables it to show two balances on the original account the first one is designated “Book Balance” which is the real balance and the other is called “Expected Balance” which is what might have been if the interest had actually been paid. – A real lesson in obscurantism. When first you venture to deceive…..
The “Capital Arrears” account relates to capitalising unpaid interest when the loans were acquired.
Isn’t it possible that the 21% refers to the number of loans performing rather than the total book value? ie just over 1 in 5 loans are performing but they happen to be of a higher value thus giving higher interest earnings…
@The Fuzz, anything’s possible but no, in this case, NAMA sets out in some detail in its quarterly report what it means by “performing loans” and the 21% is the proportion of the value of loans by reference to the original face value that are performing.