NAMA has a tendency to bunch its releases of information together. So on one day, 31st January 2012, we had the quarterly accounts for Q3,2011 together with the usual management report, we also had the Annual Statement which set out NAMA’s plans and “objectives” for 2012 together with its projections of its own costs. And to cap it off, we had the monthly list of foreclosed property issued on the same day. It’s either deserts or deluges with the Agency. And sometimes it takes a little time to tease out all the information presented in what the professionals call “one news cycle”. This blogpost looks at NAMA’s plans to appoint receivers as revealed in its Annual Statement.
The 2012 Annual Statement was reviewed in two parts on here – the objectives and the financial projections. As stated in the latter blogpost – “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). But let’s look at this projection more closely.
NAMA has acquired €74bn of loans at face value from the banks. NAMA has paid €31.5bn for these loans (according to the NTMA – €31.8bn according to the NAMA chairman, Frank Daly last week). So far NAMA has approved the disposal of nearly €7bn of assets and had received €2.5bn in cash of that €7bn by the end of Q3,2011. So of the loans that were valued at €31.5-31.8bn, how much does NAMA have now on its books? Difficult to say but the indications are €25-29bn by reference to NAMA’s acquisition values. But remember these values have declined since November 2009 – by €1.5bn in 2010 according to NAMA and although we don’t have 2011’s accounts yet, the betting is that the decline will be in the order of €1bn. And the underlying property values have declined by more than this but NAMA doesn’t have to recognise these losses if the loan is in any way performing. Although NAMA has advanced €1bn of new lending, you would expect the Agency to dispose of several billion of assets in 2012.
NAMA expects to pay €75m to insolvency practitioners in 2012 representing 1.5% of the assets which receivers/administrators/liquidators are managing on NAMA’s behalf. That indicates that the insolvency people will be managing €5bn of assets on average during the year.
So drawing these figures together – by the end of 2012, NAMA is likely to have about €20bn of assets (say, €29bn at the start of the year by reference to NAMA values less €2.5bn of cumulative impairments, less €7bn of disposals to end 2011 plus new advances less 2012 disposals) and the Agency expects to be paying receivers etc to manage €5bn.
These projections are blurred by NAMA’s apparent, but baffling, inclusion of VAT in its projections and the fact that some part of the €7bn disposals will go to non-NAMA banks.
Now 25% of NAMA’s assets in the hands of receivers doesn’t indicate 25% of the 850 developers on NAMA’s books will see foreclosure action. Liam Carroll for example is one of NAMA’s Top 10 developers, and receivers are managing his assets on behalf of NAMA and other creditors. It has been suggested that NAMA acquired €2bn of loans relating to Liam Carroll and if you apply NAMA’s average haircut of 57.5c in the euro, that would mean that Liam Carroll’s loans alone are worth €825m. NAMA has also appointed receivers to other high profile – and presumably high value – developers including Sean Dunne, Ray and Danny Grehan, Treasury Holdings, Derek Quinlan, Paddy Kelly, Paddy Shovlin, Capel Developments, Jim Mansfield and David Agar.
But having said that and factored in disposals of assets managed by receivers, it seems on here that NAMA still intends appointing receivers with gusto in 2012.
On a related topic, NAMA is paying most developers €75-100,000 to manage their assets. In two cases, NAMA is paying €200,000 but in these two cases NAMA says the developers are managing “several billion euros of taxpayers’ money” – to quote NAMA chairman Frank Daly at an Oireachtas hearing last September 2011. Now I think NAMA has been spinning us a line about these costs because if NAMA appointed receivers to a €2bn portfolio, then NAMA would pay those receivers 1.5% of this in a year, or €30m. Instead NAMA would have us believe it is paying €200,000 in two instances, and NAMA gives the impression that the €200,000 salary payment is comparable to a €30m payment to receivers. What NAMA is omitting to detail is the overall payment to developers’ companies although the Agency has said that it has insisted on 75% reductions in overheads. So you can bet your bottom dollar that you don’t have the full picture of expenses in developers’ companies – it is just not credible that NAMA has two options, pay a developer €200,000 or pay a receiver €30m.
UPDATE: 29th February, 2012. NAMA has provided a new projection and analysis of its 2012 operating costs which is shown here. The foreclosure/receivership costs have been slashed by €42m from €75m to €33m, and if this still represents 1.5% of what is being managed by receivers then the implication is that NAMA will be far less aggressive in its 2012 foreclosure action than previously expected – and written about, above.
NAMA Wine Lake 
Your comments on the overheads that NAMA is paying developers is spot on. There is no way that any of these so called developers are “solvent enough” to survive on rental or any other form of income and to claim that any of them have not broken covenants of their loan agreements is far fetched. Effectively they are being paid by the state as in any sane economy these companies would be gone, as they are entirely insolvent. They are therefore quasi civil servants! The double standard if it could be shown is that a good deal of these so called “developers” undoubtedly have separate means.
@gombeenland, “There is no way that any of these so called developers are “solvent enough” to survive on rental or any other form of income and to claim that any of them have not broken covenants of their loan agreements is far fetched.”
I would replace “any” with “many”, but the statement is substantially correct.
It takes two to make an agreement, it needs to be pointed out that the borrowers had legitimate expectations and indeed may have been given verbal assurances by the banks (who are no longer around) that their loans would be extended when the loan period ran out.
The two main reasons why covenants were broken relate to the effluxion of time and the failure of the loan to value covenant. Both of these are outside the control of the debtor.
In Germany, they would not be sufficient reason for calling in a loan, if the main terms of the loan (interest and capital repayments) are being satisfied.
Hence the difficulty for NAMA in moving against its borrowers in Germany.
Oh! My! God!
Say it ain’t so!
“Develeper” gets €200K….
“Develeper”‘s company gets X… where X=<€30M
And company="develeper"+brother+wife+accountant+solicitor.
This cannot be true?
I am not sure that you need to substitute any with many, the fact is that with the current collapse in values in the Irish market in no matter what sector of property, only the most prudent investors or developers would have been able to set LTV levels that could have survived the crash in values. In fact prudence would probably not have been enough, a good deal of luck and abstinence from the market was also required. I must say I dont agree that the investor / developer did not have control over the time and value elements of their loans. If they had employed a more professional approach to their risk estimation and their amelioration of these risks then they would undoubtedly have come to different decisions on their investments and / or developments.
@gombeenland, “Any” implies that none of the developers are solvent – which is not the case. Many developers/investors hold investment income property that is not in NAMA and is not underwater. Banks -not just NAMA- are trying to renege on 20 year loans given with sub 1% margins in 2005-7 by claiming that the loan to value ratio has been breeched. Seeing that there is no liquidity in the market and even no market of any significance, it is an easy claim to make. I fail to see how you can claim that the borrowers have control over the LTV ratio? It is a factor of the market, which for two years has been non-existent, no matter how you measure it. It does not main that loan interest and the amortization terms of the loan are not being met.
“If they had employed a more professional approach to their risk estimation and their amelioration of these risks then they would undoubtedly have come to different decisions on their investments and / or developments.”
Care to expand on that and explain how you would have achieved it?
One of Seans Companies paid directors over 200000 according to reports in Irish Independent. Would we expect to see the Salary that NAMA has been paying our developers shown in CRO returns Ect or is Payments made external of Companies involved?
@Patrick, I would be shocked if any developers accounts showed the NAMA salary separated out. The report you refer to at the Independent is here
http://www.independent.ie/business/irish/mulryans-uk-directors-paid-230000-last-year-3018234.html
and it claims that directors at Ballymore were paid €230,000 last year. If NAMA has a €200,000 cap then it begs the question why directors at a NAMAed company were paid more than €200,000. I am guessing that the directors were involved in more than NAMAed projects but have asked.
I think that we are back to words and their meaning again on this issue. I am not aware of NAMA actually paying any developer a salary. The developers are paid by the entity that owns the underlying asset – a company that has borrowings with NAMA. NAMA approves the payment of the salary.
@WSTT, it seems that the headline in the Independent might have been misleading, it is certainly ambiguous. It seems that the €230,000 is the total salary earned by the three directors in the company, whereas an interpretation – and certainly the interpretation I made – from the article was that directors were being paid €230,000 each.
So How is NAMA paying our developers to work with them?Through Debtor Companies or separately. If through Debtor Company then Surely they would be obliged to Disclose such information in Returns to CRO.
Any further comment NWL on how the developers are being paid?@wstt would we expect then to see these fees disclosed through the cro fillings?
@patrick, In all cases that I have knowledge of, so far, an overall overhead is agreed with the developer to run the portfolio. That figure includes management, office and staff cost. These amounts are negotiated (more like dictated by NAMA), prior to payment. Within these allowances is an amount for the developer/manager. This overhead cost, is then (by agreement) allowed to be deducted from any rental income prior to the NAMA rental “sweep”.
Where there are no income assets and NAMA requires the services of the borrower to add value it may agree to pay an amount subject to a Form A being presented to it. I have no experience of the latter procedure though and it is possible that in these cases NAMA just put in receivers and “dump” the debtors.