Like the first CAG special report on NAMA’s acquisition processes, there is a lack of focus in the report published yesterday by the Comptroller and Auditor General but there is also an abundance of information and detail, often randomly interspersed with a different stream of narrative. Here’s what we learn in the order the details appear in the report, rather than by any prioritising system:
(1) NAMA took over €5bn of its €32bn of loans (worth €74bn at par value) without detailed due diligence or valuation, but NAMA was due to complete ALL its due diligence and valuation by 31st March 2012, according to the report so we should now be able to see if any adjustment was made.
(2) NAMA is pursuing “foreclosure or disposal” action on 34% of its loans, 33% are at “an interim letter of support stage” and 28% are being “restructured”
(3) It seems that NAMA shaking the tree has indeed resulted in nearly €500m of additional assets coming to light that might be used to reduce developers’ debts though the CAG does say “There have been instances where NAMA identified unencumbered assets and sought that they be pledged as additional security and that debtors who want a consensual deal have agreed to do this” And the CAG says that €221m has been brought to the table as a result of these consensual deals. Of the €500m identified, just €381m has so far in fact been formally handed over.
(4) NAMA expects to advance €3.5bn in new advances/investment in developments over its lifetime to 2020. It announced €2bn this week to be advanced between 2012-2016, it has already approved advances of €1bn so presumably there will be another €0.5bn between 2016-2020.
(5) The NAMA acquisition price “incorporates state aid of over one fifth to the financial institutions”. What this means is based on an analysis of the loans subjected to full due diligence and valuation – €26bn out of the €32bn paid by NAMA – there was an overpayment which represents state aid of €5bn or as the CAG says 23% of the acquisition price. When talking about the cost of bailing out the banks – €63bn to date – it would seem to be accurate to add on €5bn to that figure. And on here, the bank bailout will henceforth be referred to as costing €68bn. So far… By the way, NAMA points out that its structure and operation was agreed with the European Commission on the basis that it was providing state-aid and the CAG report confirms that NAMA valued and paid for its acquisitions in accordance to the scheme that was approved. NAMA comes in for some criticism from the CAG for omitting consideration of property management costs from its valuation models but NAMA says that it valued in line with industry standards.
(6) Developers are not meeting “business plan” targets on rental income, down 26% in a sample of six analysed. It seems the shortfall is down what the CAG says was NAMA not taking account of property management costs when the Agency acquired the loans, but surely such costs would have been detailed in “business plans”?
(7) NAMA’s actual approved disposals to the end of December 2011 were €5bn – not any of this €6.xbn rubbish spouted by NAMA – of which €2.9bn of the approved disposals came from the sale of property, €0.9bn from sale of loans and the remaining €1.2bn from what appears to be refinancing by developers of their own loans.
(8) Of NAMA’s 194 staff at the end of December 2011, three were devoted to “asset searches” so Developers! Remember there are three full-time employees in NAMA whose job from 9-5 is to advise on asset searches and appoint asset searchers. Three! Full-time! Developers might find it enlightening to read page 45 of the report to see just what these employees do.
(9) NAMA’s estimate of its lifetime operating costs is now €1.4bn which is substantially down on the €2.6bn in the draft business plan in September 2009 and is also €0.2bn down from the €1.6bn in the June 2010 business plan.
(10) The two key risks to NAMA’s success identified by the CAG are (1) establishing effective relationships with developers and (2) it won’t achieve its cash targets. Well, f*ckadoodledoo, you have to really sit back to appreciate the genius of the CAG!
(11) NAMA has 1,000 borrowers – of which 800 are connected parties, which is where we get NAMA’s claim of 800 borrowers. Interestingly there are 35,000 properties subject to NAMA loans of which 14,000 are residential in the State, there will also be commercial plus land.
(12) NAMA expects to dispose of half of its UK assets by 2013, and 40% extra by 2015 and just 10% by 2020. So by 2015, NAMA will have largely exited the UK market. Let’s hope they have made the right call in prioritising that territory for disposals.
(13) NAMA expects to dispose of 40% of Republic of Ireland property by 2016 with the rest by 2020. The disposal of development land appears to be put on the long finger until 2016-2020.
(14) In Northern Ireland, NAMA has a firm “hold” strategy with 70% of the assets slated for disposal in 2016-2020. Well done Sammy Wilson!
(15) NAMA expects to sell 80% of the Rest of World assets by 2013 and rest by 2015. So those Bulgarian and South African apartment buildings should be shifted sooner rather than later!
(17) The cost of full enforcement by NAMA is estimated to be 15% of its acquisition values. So if you’re a developer with €100m of loans for which NAMA paid €40m, then NAMA expects to incur €6m of costs in enforcing your loan. Which should be a deterrent to NAMA and a potential bargaining chip for developers.
(18) Between April 2009 and the date on which NAMA acquired the loans, additional advances of €869m were made by the banks to developers
(19) In 17 cases, asset transfers have been identified and NAMA is confident that its current discussions with debtors will conclude with additional transfer reversals or the granting of charges to it over unencumbered assets. In five other cases to date, NAMA has initiated legal action to reverse asset transfers.
(20) NAMA has approved strategies at board level for hotels, completed residential property, land and development, and investment assets. Presumably this is for all territories. The investment strategy is for Ireland(hold) for London (sell) for elsewhere (it depends), for land and development (hold), residential (rent if rent yield>5%, else sell), hotels in Ireland(hold), hotels in Britain and Europe (sell). NAMA has separate undisclosed strategies for golf courses, North American assets and Irish apartments.
(21) By the end of December 2011, two developers had disposed of all their property under NAMA’s auspices and a further 21 developers had commenced the disposal of their property.
(22) For each individual receivership, NAMA has a “mini-tender” amongst three suitable members of its panel usually seeks fixed fee proposals for specified periods of time, usually six to 12 months. Proposals for the assets in receivership are required from the receivers within four weeks of appointment and there are quarterly progress reports as well as day-to-day engagement with the NAMA portfolio manager.
(23) The fees charged by receivers range from €20-152,000 for six month appointments and €195-770,000 for 12 month appointments.
(24) The cost of asset searches is an issue for NAMA, and there is a concern that the costs might not be justified by the results. Take a look at PDF page 59 for the costs and benefits of a sample of asset searches which turned up results, but NAMA searches have turned up race horses, British properties, transfers to trusts, a crèche, car-parking spaces, shops, luxury cars, property outside Europe including in the US, undisclosed directorships of companies.
NAMA Wine Lake 
What exactly is a Personal Guarantee. And why is it seen as property of the banks as distinct to all creditors of a development company.
Since the loan is to a Ltd entity. Why is it the Ltd aspect holds only to certain creditors. And could it be called that NAMA is in her operations are enhancing the value to herself to the detriment to other creditors.
@Vince, a Personal Guarantee (PG) is a commitment in writing given by a borrower to a creditor that if a loan is not repaid, then the lender can have recourse to the assets listed in the PG. Ireland is pretty unusual in my experience for having PGs. They mostly arise where a limited company – and a limited, “Ltd” company means the liability of the shareholders is “limited” to the assets in the company, and personal assets will generally be protected – is getting some form of credit, perhaps from a bank or supplier, and the PG normally makes personal assets like the family home a security for the loan or contract, so if the borrower defaults, the lender has additional security from the PG.
As a creditor, you only benefit from the PG if you were given a PG! And PGs were most common with banks, so other creditors like suppliers are left with what remains in the company, but banks have been able to pursue personal assets pledged in PGs.
But since most of these borrowers were limited companies established under statute NOT the persons giving the guarantee how on earth can these be enforced by the courts. Especially since the laws were designed to prevent this very scenario way back when. And if they are enforced, how on earth are the general creditor (suppliers & sub-contractors) not be included. Seems wonky. And then you have the situation where the ‘bank’ forces the &co Ltd out of business. Where then in the shake out of the reserves it knows it has access to a pool denied to the others.
@Vince, Personal Guarantees are given by persons, not corporations. So John might be a shareholder and director of Acme Limited and IBRC might have granted a loan to Acme Limited but insist on a PG from John that if the loan to Acme is not paid back in full, then IBRC can take John’s family home. That’s how PGs are supposed to work.
It lifts the corporate veil and encompasses all assets owned by the signatory,most vendor contracts are with the asset specific entity,which are normally BK remote and stand alone,in the event of fraud or malfieance,however this can be breached.Normally,requested/required for development loans,dependant on liquidity,unusual for stabilized income producing assets,but always negotiable.
The links may not work for overseas readers go direct to NAMA.
http://www.nama.ie/
21) By the end of December 2011, two developers had disposed of all their property under NAMA’s auspices and a further 21 developers had commenced the disposal of their property,
Any Idea who the Lucky 2 are. Or if they where NAMAs Larger or smaller Debtors?
Surrounded by every “professional” advisor in the State and many in London, this really, really amateur shower thought that they could manage a (discounted) €30 billion portfolio without allowing for any asset management costs whatsoever. Just incredible!
BTW< take in the €5 billion State aid and admitted overpayment for the loans and we are well on the way to the projected NAMA loss on here.
Kicking the can down the road on sales in Ireland, NAMA seems to be relying on hope for its salvation.
And as Benjamin Ola Akande, an economist, scholar, and the Dean of the Business School at Webster University in Saint Louis said to Obama, "The fact remains that hope will not reduce housing foreclosures. Hope does not stop a recession. Hope cannot create jobs. Hope will not prevent catastrophic failures of banks. Hope is not a strategy."
And that is all NAMA has got to show – Hope, not a strategy.
No sign of shadow proforma accounts based on the par value of loans (€74 bn) and showing the total write down on loans and write offs/downs of contracted interest. See:
https://namawinelake.wordpress.com/2012/01/23/nama-makes-major-concession-to-make-its-accounts-more-transparent/
and
http://www.planware.org/briansblog/2012/01/nama-additional-disclosures-based-on-par-value-of-loans.html
Based on a 4% interest rate (and ignoring loan repayments etc.), the annual interest receivable should be of the order of €3 bn. As far as I see, actual cash received in respect of interest due was €0.837 billion in 2011 (note 3 for NAML’s accounts). The difference of €2.16 billion seems to have disappeared in a puff of smoke and is NOT accounted for at all.
In contrast, look at the way the “little people” with mortgage arrears are treated. The interest machine is never turned off – repayments may move to an interest-only basis or interest may be rolled up with additional interest being payable on interest. The interest clock keeps going regardless unless, of course, you owe Nama in which case smoke and mirrors (under the guise of the EIR accounting method) can be deployed to hide about one-third of contracted interest due.
Correction: “… deployed to hide about two-thirds of contracted interest due.”
In reference to the approval by the European Commission of the state aid to Nama, I understood the approved scheme was limited to the then current value plus long term economic value. If Nama have overpaid, then does that put the whole Nama scheme in breach of EC approval?
@Howya, seemingly not because the EC decision approved NAMA’s method of valuation which was based on a mix of current market values and discounted cash flows – to be honest and I studied the original CAG report on the loan acquisition process, the valuation process was never 100% clear.
So it seems the discounted cash flows were worth more than the current market values, and that is part of the reason NAMA overpaid.
@NWL, “The two key risks to NAMA’s success identified by the CAG are (1) establishing effective relationships with developers and (2) it won’t achieve its cash targets. Well, f*ckadoodledoo, you have to really sit back to appreciate the genius of the CAG!”
I have pointed out elsewhere that NAMA’s relationship with developers is not as rosy and trusting as NAMA likes to “spin” it. You cannot have a relationship based on trust when in reality it is based on resentment and suspicion. NAMA’s world is divided into “them” and “us.” There is no fraternisation – by diktat from above. The culture of the CAB rules. There is suspicion from the NAMA employees of the debtors, and this is met with resentment in return. Both sides await opportunities to gut the other. There is no trust. This is not a relationship built on trust. Resentment rules. These are opponents. NAMA needs to accept it as fact and work within it.
To the debtors – They have their jobs and you have yours – but they are not your friends. There is nothing warm or fuzzy about the relationship – Just remember that cannibals prefer those that have no spines.
P.S. NAMA won’t achieve it’s cash targets. That too is a fact.
Frank on the report..
“It is particularly satisfying, given the enormous scale of this financial transaction which entailed the acquisition and valuation of a loan portfolio of €74 billion, that it has been managed in a manner which gives rise to no serious concerns on the part of the C&AG after detailed scrutiny by his staff of all aspects of the process. Overall, I am satisfied, based on the conclusions drawn in this independent and thorough report, that the approach we adopted was largely right, notwithstanding the very difficult circumstances which prevailed during NAMA’s establishment phase and the absence of precedents to guide us.”
Ah now Frank give it a rest,you and the NTMA justify your absolutely outrageous salaries,perks and benny packages by claiming to be a commercial enterprise capable of dealing/negotiating with US Funds.So be it,then your performance should be measured by the rough and tumble REAL world,after all your remuneration is outside the CS salary cap.
Following that logic,we can expect some resignations,clearing out off the deadwood, fire the failed valuers yesterday.
Frank if you ran a REAL company answerable to shareholders or a opportunistic fund they would be taking your resignation letter out of the filing cabinet and wishing you all the best.One wonders who was in charge of this over valuation and where are they these days……ah sure they were ‘largely right’ a bit like the developers who overpaid too!
http://www.irishtimes.com/newspaper/finance/2012/0525/1224316662601.html
http://www.independent.ie/business/irish/nama-faces-challenges-in-clawing-back-32bn-toxic-loans-watchdog-3118479.html
Frank is the gift that keeps on giving. He really took the biscuit this week. If he had any sense the first thing he should do is sack the new “spinmeister”, who seems to have carried out no research, nor acquired any knowledge of previous credit bubbles and “bad bank” asset management agencies. All he is capable of producing is banal platitudes.
From Frank’s mouth:
“it (the NAMA portfolio) has been managed in a manner which gives rise to no serious concerns on the part of the C&AG after detailed scrutiny by his staff of all aspects of the process.”
Did Frank (or his PR mentors) actually read the report?
Only 20% of loans performing.
Uncollected interest being added to “fudge” a bottom line profit.
Losses building up due to falling values.
No market in Ireland.
No credit availability.
Bad relationships with debtors (despite protestations to the contrary).
Assets purchased at an unsustainable level (€5 billion loss on acquisition).
…. there is more
He also said.
“the approach we adopted was largely right, notwithstanding the very difficult circumstances which prevailed during NAMA’s establishment phase and the absence of precedents to guide us.”
No precedents Frank? What about:
USA (1980s – 1990s): The establishment of the RTC following the Savings & Loan crisis (Great precedent)
Norway (1991-1993)
Finland and Sweden (1992-1994): The establishment of Securum (Another great precedent)
Japan (1990s)
Mexico (1994-1995)
East-Asia (1997-1999)
Argentine (2000-2002)
USA (2007-?)
UK (2007-?)
Iceland (2007-?)
The spin department is doing you no favours, Frank. You need to read the spin before you broadcast it. Your credibility is being damaged. Soon the wider public will see it for what it is, and thanks to the NAMA PR department, you will end up the butt of a lot of pent up anger.
PJ Mara once said to me that all political careers end in failure. Frank is not a politician, but he is the nearest thing to it. He is the political face of NAMA. Hero or failure? With the current speechwriters……. I’ll stick with PJ’s assessment.
That 5bn………if that is NAMA value (already discounted)…..then is it not still possible that when due dilligance of this is done (on loans of around double that I guess – Book Value) that NAMA will still come to the conclusion that we didn’t overpay?
Sorry if that is a little confusing, but is it not the case that the C&AG is assuming we overpaid by 5bn because we did not properly evaluate the loans…..once we do evaluate them he may find we overpaid by less than 5bn or even not at all?
@Rob, the CAG is saying we overpaid period! Or rather it is saying on the analysis of 80% of the loans which have been acquired by NAMA and subjected to full valuation and due diligence that we have overpaid by €5bn. That may rise when the due diligence and detailed valuation work is completed on the 20% of NAMA loans which were acquired in late 2010 on an accelerated basis after then Minister for Finance, Brian Lenihan issued NAMA with a Direction to do so.
Or have I misunderstood and the C&AG is saying we overpaid by 5bn period?
Many thanks. The C&AG report is certainly clearer than NAMA’s efforts but I wasn’t 100% on the State Aid point as covered in the media.
[…] having deliberately over-paid for the €74bn loans acquired from the banks – remember the Comptroller and Auditor General recently reported that NAMA had paid €5bn in state-aid so far, and that figure is set to rise further as the due […]