Myths and facts about NAMA

Today the NAMA CEO Brendan McDonagh pens what I think is the first ever newspaper article on NAMA – there have been interviews with NAMA folks in the past, but I cannot recall Brendan himself having ever penned his own work for a newspaper. In the article, he talks a little about NAMA but the article is noteworthy for its “myths and facts” approach, in which common criticisms of the Agency are refuted. But Brendan sets his own agenda and chooses the criticisms he wants to respond to. Here are some he omitted:

Myth: there is confidence that NAMA will make a profit over its lifetime or at least recover its initial outlay in acquiring loans plus interest/overheads and new advances.

Fact: NAMA made a loss of €1.1bn in its first year of operation 2010, and looks set to make a further loss in 2011 after taking impairment charges into account. And remember NAMA has been disposing of its more attractive “low-lying fruit” – what happens when it is left with just, what some call, “unsaleable crap”. Furthermore NAMA is using a method of accounting for interest income from developers which requires NAMA to forecast the future value of property underpinning loans, and NAMA doesn’t have a good record in the area of forecasting. The short term outlook for residential and commercial property in Ireland is shaky, to say the least. In the Oireachtas on Wednesday, banking guru and politician Deputy Peter Mathews suggested NAMA might be lucky to get away with losing €5bn by the end of its lifetime. NAMA’s primary property market, Ireland is down 20-30% since November 2009 and as recently as mid-2010 NAMA was claiming that changes in NAMA’s property markets had a “broadly neutral” effect on the value of its assets.

Myth: NAMA meets deadlines

Fact: Over a year after NAMA was supposed to have acquired all its loans, it still hasn’t had approval from the European Commission for nearly two thirds of its acquisitions. NAMA’s tranche one was agreed by the European Commission in August 2010 and tranche two in October 2010. Since then, the EC has been silent. Yet NAMA claims to have completed its acquisitions and “practically” completed its due diligence. NAMA was to have agreed plans with developers at this stage, and those “agreements” were to have comprised three documents, a memorandum of understanding, heads of terms and a final agreement and each was to be signed by NAMA and the developer. Two years after NAMA acquired the first tranche and NAMA tells us this week, for the first time, it has abandoned these agreements for smaller-scale developers and is instead just “assessing” plans, and NAMA declines to tell us how many of the bigger-scale developers have these agreements though sources suggest less than five. NAMA said it would have a result on the Liam Carroll Anglo HQ by the end of November 2011, and four months later, nada.

Myth:  NAMA is more transparent than any other Irish semi-state organisation, and has a team from the Comptroller and Auditor General constantly on site in NAMA’s headquarters in Treasury Building, to ensure NAMA’s operations are sound.

Fact: The Comptroller and Auditor General has no discernible expertise in asset management, and if you take a look at its first special audit report into NAMA, you might doubt it has any great expertise in auditing. NAMA is a new organisation, governed by bespoke legislation and staffed by many who are untested in the area of property and loan asset management, it has new personnel, new teams, a new IT system and at the same time is one of the biggest asset management companies in Ireland. Although NAMA produces quarterly accounts and makes itself available to political oversight committees, the Agency is new and we have precious little information about the meat of what it actually does – manage and dispose of assets. And what little information we do have – that NAMA has generated €132m profit on cumulative disposals to the end of September 2011 does not fill us with confidence, given that the initial disposals are understood to be the best assets.

Myth: NAMA is a paragon of efficient decision-making

Fact: NAMA started promoting its negative equity mortgage product in May 2011, and nearly a year later we are still waiting for the launch. It was targeted for launch on at least two occasions which have been missed. And its eventual launch will depend on European Commission approval which was only sought in December 2011, and which was expected – per NAMA – by the end of February 2012 and is still outstanding. NAMA decided to introduce Qualified Investment Funds in January 2012, and produced the most threadbare tenders that I have seen in a long time, and which required NAMA to produce at least four subsequent clarification Q&As with 200 questions answered. NAMA seems uncertain how the QIFs will operate, is seemingly saying it will roll them out to Northern Ireland and I’m willing to bet that most politicians charged with overseeing NAMA have little idea about how these funds will operate. NAMA’s response to the Geoghegan report which called on the Agency to bring back under its wings, the management of the 600 smaller-scale developers’ loans was to take 15 of its existing staff and stick them in the banks to oversee the 500 bank workers; this approach has all the hallmarks of a farce.

Myth: NAMA is not distorting the property market in a negative way.

Fact: In Ireland, NAMA holds €9.25bn of commercial property at November 2009 prices, probably worth €6-7bn today. Last year the Irish commercial property market saw less than €0.5bn of transactions. NAMA’s potential dominance of this market is abundantly clear. NAMA has not been actively selling substantial amounts of commercial property in Ireland and the market is waiting to see what happens with its immense stock which may move prices when it eventually comes to market.

Myth: NAMA doesn’t get lobbied by politicians

Fact: I need to be careful with my language here because lobbying NAMA is supposed to be a criminal offence. My understanding of the term “lobbying” is when one party seeks to influence the behaviour or decision of another party. That can be done through intimidation and bribery, or in a more civilised world, persuasion and argument. NAMA says that politicians merely bringing facts to its attention, and that doesn’t constitute “lobbying”. And although NAMA and the Minister for Finance Michael Noonan might dispute the claim, it seems obvious that the appointment of the NAMA chairman Frank Daly to the newly created NAMA advisory board, a politically accounting grouping, merely strengthens the political hold on NAMA.

Myth: NAMA applies the same standard in its approach to developers, regardless of the jurisdiction in which those developers reside.

Fact: NAMA has foreclosed against 27% of developers outsideNorthern Ireland, most in theRepublic ofIreland compared with just 8% inNorthern Ireland. NAMA has taken action against developers in the Republic so as to dispose of the Bentleys, the yachts and the jets. But there is no evidence of that happening inNorthern Ireland. “Political sensitivity” isn’t mentioned in the NAMA Act as a factor to be considered when NAMA pursues its objective of maximising its return to the taxpayer.

Myth: NAMA has poured €506m into the domestic economy through advances to developers.

Fact: As of three weeks ago, NAMA had approved €402m of advances but had actually handed over only €280m. €280m since December 2009 looks paltry when one looks at the blight of incomplete, decaying, criminal-magnet property across this country. And although NAMA might rightly claim, its influence on ghost estates is minimal with just 13% of the worst estates in NAMA, there are constant reminders of NAMA property left to deteriorate, without any contribution to the economy or society, which prompts questions about why so little money has been made available inIreland to complete, secure and maintain property.

Myth: NAMA is mandated by the bailout Troika to repay 25% of its debt by 2013

Fact: Unless I am missing something, the reference to NAMA in the May 2011 series of documents released by the IMF is confined to NAMA’s disposal of assets and there is an “intention” to dispose of 25% of its assets by 2013, which is different to a commitment to repay 25% of its debt. Some observers ask what NAMA should do with its cash mountain, if not repay its debt which is costing the Agency 1-2% per annum. Some respond to that by suggesting NAMA take an active role, further to the NAMA Act and the primary objective of maximising income for the taxpayer, and enter into public private partnerships with the Government – with NAMA as the “private” party – to develop property for socially useful purposes, in the areas of education, healthcare, community enterprise and security. Instead of the Government spending capital sums now, it could lease property from NAMA for several years before making a balloon payment to NAMA in advance of 2020 when NAMA has to redeem its bonds.

Myth: NAMA ensures that it maximises the marketing of assets in all cases so as to get the best price for the taxpayer

Fact: We know precious little of the detail of NAMA’s disposal of property, but there have been instances when eyebrows have been raised. For example, a development site on the edge of Ireland’s second city, Corkwas sold after the property was marketed with signage on the property itself! A “soft deal” for the buyer which was a partnership includingCorkUniversity. NAMA says that it gives state agencies and local authorities first refusal on property and will accept prices as long as they are reasonable, but without putting such property to the market, how will NAMA know that it is getting the best price? NAMA’s monthly publication of property foreclosed is riddled with errors, addressing mostly and the Agency does not portray itself as a target-focussed asset management organisation.