NAMA before the Oireachtas finance committee later today

[The transcript of the hearing is now available from the Oireachtas here]

At 2pm this afternoon, NAMA will appear before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. NAMA will be represented by its CEO, the owlish Brendan McDonagh and its chairman – and now also, a member of the politically accountable NAMA advisory board – the hawkish Frank Daly. NAMA last appeared before this committee last September 2011 and it can expect to be as robustly questioned today.

We are set to find out that NAMA has been exceptionally busy in the past month. The NAMA chairman Frank Daly told the Dublin Chamber of Commerce on 9th February 2012 that NAMA had dealt with 6,000 credit decisions since its inception – an average of 12 per working day. NAMA is set to tell the Committee later today that just one month later, the Agency has dealt with 7,000 credit decisions, an almost incredible 1,000 increase in the space of a month!

Not only that, we are set to learn that NAMA has approved €147m of new advances to developers in just three weeks –  it told Sinn Fein’s Gerry Adams on 16th February 2012 that it had approved €980m, and that is understood to now stand at €1,127m. And with 45% of this in Ireland, that’s up from the 41% just four weeks ago!

NAMA is also likely to defend its record with delivery on its social and economic objective, and to strongly affirm its commitment to job creation and investment. The Sunday Independent claim that NAMA nearly cost 230 jobs in southDublin is likely to be again refuted in the strongest terms. In fact, NAMA is set to claim that it is directly supporting nearly 10,000 jobs in Ireland through its workings with developers.

There will be a review of the hearing here later today.

UPDATE (1): 14th March 2012. The opening statements from the NAMA CEO and the NAMA chairman are now available.  There will be a summary of proceedings here shortly.

UPDATE (2): 14th March 2012. Here are the highlights interpreted on here from the 3.5 hour hearing this afternoon.

(1) NAMA “would be confident” of recovering the €32bn it has paid for loans plus NAMA’s carrying costs – interest, new advances and operating costs. NAMA says it will be a “huge challenge” but there is nothing that would “seriously suggest”  NAMA won’t reach that figure and furthermore, the board of NAMA doesn’t accept that it is looking into “loss territory”. All of this despite banking expert Deputy Peter Mathews suggesting that NAMA was now looking at a €5-10bn loss.

(2) NAMA has a cash mountain of €4.3bn of which €2bn is on deposit with the Central Bank ofIrelandand the remaining €2.3bn is “invested” in short term Government bonds.

(3) NAMA has “no intention” of borrowing money to fund advances to developers, as provided for under the NAMA Act which places a cap of €5bn on such borrowing. Instead NAMA will use its cash mountain to fund any such advances.

(4) Of the 790 developer business plans, NAMA has “assessed” 550, enforced 180 and has yet to “assess” 60. Although NAMA told a public accounts committee in November 2010 – after it had acquired 90%-plus of its loans from participating banks – that it had a process of agreement which involved a memorandum of understanding, heads of terms and final agreement and each needed be signed by NAMA, the developer and potentially the developer’s spouse, NAMA subsequently abandoned this system for “assessments” which involves taking control of rent rolls and agreeing an asset disposal schedule.

(5) Following the introduction of a scheme in December 2011 to deal with Upward Only Rent Review clauses in agreements with NAMA developers, NAMA has received 150 applications from developers and tenants to reduce rents and 120 have been reduced and 30 more are pending.

(6) NAMA describes the Irish property market as “very moribund”. Deputy Richard Boyd Barrett described it as the “absolute doldrums”. In 2006 there were some €45bn of residential, development and commercial property transactions, last year there were less than €3bn.

(7) NAMA has softened its stance on selling property back to defaulting developers and says that legislation may be needed in future to deal with this prohibition which can impede NAMA’s ability to maximise revenue. This is the first time that NAMA has expressed any level of desire to change the NAMA Act.

(8) NAMA’s cost of funding is close to 2% – given the six month Euroibor rate is just over 1% and the subordinated bonds, which comprise 5% of the consideration paid for the loans, carry a rate of 6%, it seems as if NAMA has some major interest hedging costs.

(9) The loan relating to Priory Hall was not acquired by NAMA because the Agency assessed the loan was not just worthless but had a negative value because of the remediation work required. NAMA says it was prevented by section 85(3) of the NAMA Act from acquiring loans with a negative value.

(10) NAMA claims that in ALL cases, if a developer has a tenant, then it has pursued a mandate for the rent to be paid directly to NAMA.

(11) Here’s a nugget. It seems as if any ultimate loss made by NAMA over its lifetime may not now be recouped from the banks – AIB/EBS and Bank of Ireland. Brendan McDonagh says that once the subordinated bonds which comprise 5% of the NAMA acquisition consideration for the loans is used up, then it is the taxpayer that will foot the bill for any loss. This is not what the NAMA Act says, so it will be interesting to examine this claim further.

(12) NAMA is confident that once it gets approval for its negative equity mortgage product – was apparently expected in February 2012 from the European Commission but seemingly still hasn’t been given – then it will be able to offload property to people currently renting NAMA property.

(13) NAMA acknowledges that some developers have gone to the UK to seek bankruptcy but NAMA menacingly (or reassuringly depending on your perspective!) that even after bankruptcy has ended after one year, there is a further two year probationary period and if, during the period, previously undisclosed assets are uncovered then the bankruptcy starts all over again.

(14) NAMA says that in its opinion, the Irish residential property market is nationally down 57% from peak values, compared with the 48% published by the CSO in February 2012. NAMA says that although the CSO says that prices outside Dublin have fallen by just 43%, that NAMA’s experience is that they have fallen by much more.

(15) Both Deputy Pearse Doherty and Deputy Stephen Donnelly raised a general question as to how the Committee and politicians generally can be reassured about NAMA’s performance. The response from Frank Daly was process-focussed, that decisions within NAMA were rigorously examined. Furthermore the Comptroller and Auditor General was on site at NAMA to ensure it operated properly. And that was that – what expertise does the CAG’s office have in asset management?

(16) Both Brendan McDonagh and NAMA’s Director of Asset Management said they were very keen to speak to people who wanted to buy NAMA property, especially if they were not getting satisfaction with the developer or receiver. They could phone either of them, or contact them via email at info@nama.ie .

(17) NAMA says that its plan to send 15 of its existing staff into the banks to “intensively” oversee the management of the smaller loans by the 500 bank staff will satisfy their interpretation of the recommendation in the Geoghegan report that NAMA take back the smaller loans from the banks.

(18) A year after the conclusion of the Paddy McKillen case, NAMA still hasn’t got a final figure for its legal costs.

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