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Archive for February 19th, 2012

This blog is neutral on the NAMA concept. In theory, sucking out the bad or uncertain loans from the country’s banking system, putting a certain value on those loans which was independently verified by the EU and replacing those dodgy loans in the banks – and remember it was the banks that made the original bad loan decisions in the first place – balance sheets with fresh crisp NAMA bonds which could be exchanged for cash at the ECB, then managing those loans on a developer-basis – which originally might have been at multiple banks which allowed developers pull wool over individual banks’ eyes – and  making additional advances for finishing-out projects or maximising returns – all of this could theoretically be a success.

It’s not NAMA’s fault that the losses on the original loans made by the banks were so severe that even after NAMA had sucked the toxin out, the patient was so ill that it needed more transfusions from the State which brought most of the banking sector into public ownership. As for the rest, the jury is still out, but from reviewing the media (including the “new media” such as this blog) in the past couple of months, the picture being presented seems pretty monochrome, depicting NAMA as a failure. Well, that’s unfair; so in the interests of balance, it might be worth pointing out that NAMA is doing some things well. Here are 10:

(1) NAMA has valued and conducted due diligence on €74bn of loans, and received EU approval of €26bn of these acquisitions. It is a monumental achievement to have put a certain value on such loans. The banks have received NAMA bonds for the loans which they can exchange for cash at the ECB. If the original loss estimates for loans at the likes of Anglo had been correctly assessed, NAMA would now largely be seen as a success.

(2) NAMA has evolved from zero in April 2009 to an Agency of 200 today, plus an array of verified and tested third party suppliers. The 200 employees have undergone pre-recruitment testing that has been compared to that used byAmerica’s Central Intelligence Agency, and to date, none has left the Agency with egg on its face. Creating this Agency has been a monumental undertaking, which was necessary in the context of the role handed to NAMA.

(3) The NAMA CEO Brendan McDonagh is by all credible accounts I have come across, an honest, incorruptible, hard-working, diligent leader who leaves any ego outside the door. He has waived his bonus of up to 60% of salary for the first two years of NAMA’s existence. He has waived 15% of his salary for 2012, meaning he is earning €365,500 instead of €430,000. Yes, that is a huge sum, but is teensy by comparison with rewards on offer for similarly-sized asset management companies. The NAMA chairman Frank Daly has likewise taken a cut to his €170,000 fees and is now paid €150,000 per annum, and with a lifetime of public service under his belt and a fearsome reputation from the Revenue Commissioners, could NAMA have a better chairman?

(4) NAMA has scored bulls-eyes with at least three developers’ loans where it has apparently recovered 100% of the original face value of the loans – in the cases of David Daly, Durkan and Paddy McKillen (though there is a residual exposure on the McKillen loans). It may have scored more, but because NAMA is prevented from releasing details of deals, we may never really know.

(5) NAMA has changed the face of receivership in this country and acted to drive down professional services prices. NAMA saw that share receivers were being paid €800 per hour and have promoted the use of property receivers who charge a quarter of this rate and concentrate on maximising income from assets that were collateral for loans. Similarly NAMA defends the payment of salaries to developers with which the Agency is co-operating, saying the average payment of €75-100,000 is good value compared with the appointment of receivers. In two cases, developers are being paid €200,000 per annum but NAMA says this is for the management of multi billion euro portfolios.

(6) In the Paddy McKillen case, NAMA actually won on all points in the High Court, so NAMA’s decision to defend itself against Paddy’s legal challenge seems reasonable enough. At the Supreme Court appeal, it was a score-draw though the effect was that Paddy was entitled to be consulted before his loans were acquired and Paddy had his legal costs reimbursed. But NAMA had no real choice but to defend itself against allegations of unconstitutional behaviour, and despite the Supreme Court loss, NAMA has successful in its other cases.

(7) NAMA has stuck to its objectives, despite increasingly intense political interference. A couple of weeks ago on here, it was exclusively revealed that Minister for Jobs, Enterprise and Innovation, Richard Bruton had intervened in a NAMA decision on a lease involving BSkyB and the creation of 800 jobs. Now we can all criticise NAMA for adhering to its primary objective of maximising value, which may have meant in the Burlington Plaza case, holding out for a single tenant who might pay a premium, but NAMA is doing what it is supposed to do under the Act. Similarly today in the Sunday Independent there is criticism of NAMA’s delays in dealing with a south Dublin property which Google wanted to occupy and accommodate 230 new jobs, but reading the article, it seems to me that the property was still being managed by the “Ford Cortina and three bed-semi”-averse developer, David Agar and, based on the details in the article, it seems on here that it was David Agar who was dragging his feet. And although Minister Hogan might have gotten involved, it seems he didn’t deal with NAMA but with the local authority which was also apparently dragging its feet. Just why should NAMA be the target for criticism here?

(8) NAMA has talked the talk, and walked the walk, in its treatment of developers. It has not been backwards in appointing receivers to some of the best known developer names in the country – Ray Grehan, Sean Dunne, Paddy Kelly, Jim Mansfield, David Daly, David Agar, Paddy Shovlin. It has pursued Ray Grehan through courts in Canada, the USand Britainso as to secure assets which might be used to pay down the Grehan mountain of debt. It has not apparently displayed deference to wealth, connections or political affiliations, which is pretty amazing when you think about it. In fact the NAMA team is as close to The Untouchables – without the Armani wardrobe –  as you’re likely to find in Irish society.

(9) NAMA, despite having an annual costs budget of €200m and managing €74bn of loans at par value, has, almost incredibly, avoided scandal. Yes, there have been allegations of conflict of interest, claims that assets have been disposed of below value to parties associated with debtors and a general narrative that NAMA is a gravy-train for professionals. But the conflicts have been explained away, no claim of below-value disposal has been proven and no-one has demonstrated that NAMA is wasting money – for example by comparing the cost of two courses of action.

(10) NAMA deals with an average of 12 credit decisions a day, every day. This blog receives an average of one complaint per week on the subject of NAMA’s bureaucracy in dealing with sales/leases. The standard response on here is to recommend to the prospective buyer/tenant that they write to the NAMA chairman, Frank Daly with their complaint – he is on record for inviting such correspondence. And here’s the strange phenomenon – not a single complaint has survived correspondence with Frank which indicates to me that NAMA is reasonably responsive, and is doing its work reasonably well.

NAMA is in court against Treasury Holdings this week, and it is clear on here, that big beasts are prowling about testing for NAMA weaknesses. At its core, the case that is set to commence on Tuesday is about NAMA’s freedom to act on loans in pursuit of the NAMA objectives as set out in the NAMA Act. NAMA has suffered from procedural error in the past – for example, failing to ratify pre-incorporation decisions in the Paddy McKillen case – but in general terms, NAMA has not been found at fault for pursuing the principles upon which the Agency was founded, and that includes making decisions to maximise income. Despite what now seems like an erroneous report on here on Thursday evening last, it seems that the Treasury case is going ahead even if there might have been overtures at a settlement, I see that affidavits have been filed for NAMA’s portfolio managers Mary Birmingham and Michael Moriarty and that on the Treaury side there is an affidavit from Dr Michael Cragg of the Brattle group who played a supporting role in the Paddy McKillen case at the High Court in 2010. The Agency might well feel it is embattled at present, but what else might it have expected as it sought to pursue its objectives which would result in losses to some of the most powerful and wealthy people in Irish society, and which would bring it face-to-face with politicians and others pursuing agendas which conflict with the NAMA role set down in law. As stated under the “About” section of this blog, this blog is neutral on the NAMA concept and concerns itself with implementation, and you can expect balanced reporting on the Treasury battle as it gets under way this week where you are likely to learn about a few more things that NAMA is doing right.

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