Click to Enlarge. The table below is taken from the NAMA Annual Statement published at the start of February 2012.
You could be forgiven for thinking that NAMA has been, and will be, with us forever, but it was only December 2009 when the Agency was created and even at the end of 2010 the Agency had less than 100 employees. Today the Agency is completely up and running, managing loans, foreclosing on some, overseeing sales on some, advancing new lending to compliant developers and generally getting stuck into the meat of what an asset management company should be doing. Despite the token 51% shareholding by “independent third party investors”, NAMA is ours and it is the State that will foot any bill for any losses in NAMA. So it might be a good time to look at what costs the Agency is running up on our behalf. Also the NAMA chairman Frank Daly seems to think that €500m will cover NAMA’s costs over its 10-year lifespan! Here’s a look at last week.
Internal costs – NAMA employs “just under” 200 staff and as far as I can see, the average annual salary is €175,000 inclusive of benefits including pension, employers’ PRSI, bonuses and allowances. In contrast, during the week, the NAMA chairman Frank Daly said that the average salary was “less than €100,000” and that “just a handful” earned in excess of €200,000. So the weekly salary cost seems to range from €385-673,000.
In addition NAMA rents office space from Johnny Ronan, who interestingly has returned to using his office in NAMA’s building for his work. And the weekly charge for rent appears to be €20,000, based on NAMA’s reporting of “rent and occupancy costs” of €812,000 for the first nine months of 2011.
NAMA gets IT, finance, admin, HR, PR and other supports from the NTMA and it seems the average weekly cost is about €100,000 based on its payment to the NTMA of €18.3m for the first nine months of 2011. NAMA is also incurring IT costs in its own right on its bespoke portfolio management system and the Agency has booked €631,000 of IT costs in its own right for the first nine months of 2011, or €50,000 per week.
There are lots of miscellaneous costs, eg NAMA spent €825,000 on improvements to its accommodation atTreasuryBuilding. Quite a significant sum given the building is new and NAMA is supposed to wind down by 2020.
The internal costs however are a drop in the ocean compared with the external costs.
Legal – if there is any contracting body in the State running up more legal costs than NAMA, I would really like to know. Presently NAMA is defending itself from at least three legal actions in Ireland, Treasury’s is probably the biggest but NAMA is also being sued by an insolvency practitioner, Carl Dillon and recently by building group O’Laing Rourke Ireland. NAMA is also in the courts appealing against a decision by the Information Commissioner. And of course NAMA is routinely pursuing developers through the courts to enforce guarantees and the like. Just this week, NAMA lodged applications in Dublin’s High Court against companies in the Moritz group, but NAMA is also pursuing the directors of Capel Developments. The Sean Dunne application is still extant. Sadly, not a single media representative seems to have been in court for the costs hearing in the David Daly case on 1st February, 2012. In North America, NAMA has been chasing after Ray Grehan’s assets through the courts in Ontario, Canada as well as Manhattan, New York. NAMA is being sued by a former employee of a NAMAed property in Georgia, USA and NAMA is defending itself from an action in Sarasota, Florida. In the UK, NAMA has been on Ray Grehan’s tail in the High Court and last week NAMA was on the losing end of a Paddy McKillen preliminary action. Week-in, week-out NAMA is having receivers and administrators appointed to developer companies, and it is the big law firms that are making the applications. NAMA is trying to get its controversial negative equity mortgage product past the European Commission and you could well expect legal advice in the area of competition law to have been obtained. How much is all of this costing per week? Difficult to tell, but during the week, NAMA revealed that it has incurred €27.5m of legal costs in the 25 months to the end of January 2012. Excluding the legal due diligence work on the acquisition of loans which came to a total of €10.1m and which was 100% recharged to the banks, NAMA has incurred €17.4m of legal expenses in 25 months. That’s €161,000 per week (€17.4 / 108 weeks). And if Paddy McKillen is awarded €50m in damages in hisUK claim, then that will rocket.
The Banks/Capita – although it’s not widely appreciated, NAMA has devolved the administration of most of its loans (by volume) to the banks themselves – you’ll often see advertisements for jobs at the banks to work in the NAMA department, see here for example. The banks are paid 0.1% of the value of the loans they administer for their trouble and that’s worth about €74m per annum or €1,500,000 per week. In addition, NAMA has engaged a company called Capita to oversee the work of the banks, and this contract looks like its worth €782,000 per quarter or €60,000 per week.
Finance – under this heading you could include audit, taxation, derivative valuations and miscellaneous finance related advice, for example on the sale of the €800m of Maybourne loans by NAMA to the Barclay brothers in September 2011. We found out during the week, thanks to a question submitted by Gerry Adams, that NAMA’s internal audit costs in 2011 paid to Deloitte and Touche came to a total of €1,219,744.74. In addition NAMA paid the Comptroller and Auditor General a total of €530,000 for the external audit. And NAMA paid €151,160 to Pricewaterhouse Coopers (PWC) for “external accounting advice”. So in 2011, NAMA spent a total of €1.9m or €37,000 per week. In addition NAMA is running up large “derivative valuation costs” of €672,000 for the first nine months of 2011 or €50,000 per week.
Consultancy – you don’t hear a great deal about NAMA’s consultants. They fly below the radar of procurement thresholds which means we don’t see tenders. Nor do we see consultancy costs split out in the NAMA accounts. And given the threadbare detail provided in the NAMA accounts, it’s difficult to even put an upper limit to consultancy costs. For example, a recent report for NAMA by WK Nowlan into REITs; how much did this cost? And would the cost have been charged to the Profit and Loss account or might it have been capitalised in anticipation of the launch of a NAMA investment fund, and if it was capitalised where might we find it in the accounts?
Receivers, liquidators, administrators – when you look at the list of NAMA foreclosure actions in Ireland – available here – and the list of NAMA foreclosed property – available here – you’ll see that NAMA is a major client to insolvency practitioners. NAMA typically engages share receivers which tend to be expensive up to €900 per hour and property receivers which are cheaper but still about €200 per hour. Law of Proper Act (LPA) receivers in the UK are cheaper than Ireland, but not significantly so. According to the NAMA it expects to spend €75m or €1,500,000 per week in 2012 on “recovery/insolvency costs” which represents 1.5% of the asset values foreclosed (indicating €5bn of assets being managed by receivers – or one sixth of NAMA’s total assets)
Estate agents/loan sales agents/developers commission – contrary to common perception, NAMA hasn’t repossessed a single property in its own name yet. What it has been doing is to appoint receivers who manage the company or asset so as to maximise the recovery of debts to all creditors, and NAMA might be just one of many creditors to a defaulting company. So at present the estate agent fees are run up, in the first instance by receivers. This will change as NAMA does take over property in its own name. However NAMA is running up costs with companies engaged to advise on the sale of loan portfolios. These companies were only engaged in January 2012 so we haven’t seen any costs just yet, but the likes of Goldman Sachs and Lazard will not have come cheaply.
Developer salaries – this is not really a NAMA expense in the sense that it will not form part of NAMA’s accounting, but make no mistake about it, NAMA is controlling the sums paid to developers, both their companies for general overheads and specifically the salaries paid to developers. NAMA is able to confirm that the typical developer earns between €75,000 and €100,000 and that two developers earn €200,000 – in respect of their work with NAMA. NAMA doesn’t disclose the names of developers but it is widely believed that one of the two developers is Sean Mulryan from Ballymore. But remember Sean will derive income not just from NAMA but he has other lenders and other irons in the fire so €200,000 might be – and no more than “might” – his reward from NAMA but his annual salary from all sources would be expected to be much more.
So how much of our money has NAMA spent this week? It will vary from week to week of course but it will be close to €5,000,000 excluding costs incurred by developers.
UPDATE: 29th February, 2012. NAMA has provided a breakdown of its revised 2012 costs in response to a question from Sinn Fein’s Gerry Adams in the Dail yesterday. The question and answer will be online later and linked here, but for now here is the breakdown below provided together with the previous projection for comparison. Remember than on 31st January 2012, NAMA published its annual statement which projected its costs for 2012 at €242m. This “annual statement” was in fact produced in September 2011, and NAMA buried its revised projection for 2012 in a press release which didn’t draw attention to the fact these costs had been superceded by a new projection which is now €194m. Good news for us, as NAMA has cut its costs by €48m or 20%. So what we got yesterday was a breakdown of the €194m, which is the current 2012 projection. So NAMA is no longer costing us €1m per working day, just €800,000. The main change has been to NAMA’s projection of its recovery/insolvency costs which have seen a €42m reduction from €75m to €33m. If this still represents 1.5% of the value of NAMA’s foreclosures, it indicates NAMA will be less aggressively pursuing foreclosure than previously reported on here. NAMA seems to have reclassified what it called “advisory fees” to “miscellaneous”.