How many state-owned bad banks does Ireland need?

“Not all of them have yet abandoned the extravagant mindset of the 2003-2007 era” NAMA chairman Frank Daly speaking in May 2010. He was talking about developers but could the same be said of politicians and civil servants?

We’re not a huge country, but Officialdom has a tendency to think we are – 166 TDs representing an average of 28,000 constituents, 34 local authorities each having city or county managers on close to €150,000 per annum and some earning nearly €200,000 plus an expensive Seanad which contrasts with the political system of one of the donors to our bailout Denmark which abolished its second chamber half a century ago. But the empire building and expansion extends beyond the strictly political withIreland set to have not one, not two but three official bad banks. Each with its own management, systems, premises and best of all, they will be dysfunctionally competing with each other.

First up we have NAMA, the custom-built “bad bank”, though it should be said that a fraction of its loans are performing so it’s not all “bad”. NAMA has 210 staff employed directly, plus 400-500 staff working at the banks plus an army of professional firms providing legal, accounting, insolvency and other services. NAMA has new personnel, teams, systems and operates under new legislation.

Secondly we have IBRC, the entity that emerged from the merger of Anglo and INBS last year. Now IBRC was not custom-built as a bad bank. When its CEO, the very handsomely-rewarded Mike Aynsley was recruited in late 2009, it was intended that Anglo would continue to operate and grow as a bank. However, despite what looked like intense resistance from within Anglo, the Government was eventually forced to fall in line with European Commission wishes and wind down Anglo and INBS. And so IBRC also became a “bad bank” with a 5-7 year lifespan to wind-down its loans.

So now we have two official bad banks, both asset managing loans, mostly based on property lending. We have two expensive sets of management and we have political oversight over both institution. Not only do IBRC and NAMA compete together for staff and resources, which is bad enough, they also compete with each other when flogging off loans or underlying property. Dysfunctional? You betcha, though Officialdom has so far avoided any examination of the cost.

So if two state-owned bad banks weren’t enough, we are now to have a third official state-owned bad bank. Enter the Permanent TSB where it is expected to produce an  outline plan to create a bad bank by the end of June. Thereafter we won’t just be duplicating, but triplicating management, systems, premises, staff, procedures and political oversight. And of course Permanent TSB will be competing with NAMA and IBRC as it seeks to wind down its loan book. Arguably most of its loans will be personal such as loss-making tracker mortgages and impaired mortgages, but nonetheless the core competencies are the same across each of the three institutions.

And finally we should remember that AIB, which is practically state-owned is doing its own deleveraging though it hasn’t formally created a “bad bank”. Quadruplication?

Is it not high time to call a stop to the empire-building, cost and dysfunction and have our well-paid politicians and civil servants design a single state-owned bad bank? Or are they too clinging on to the extravagant mindset that prevailed in the 2003-2007 era?

[There is a blogpost here which compares NAMA with IBRC, and highlights the duplication of costs/function in those two institutions]