By coincidence, this morning I was studying a Bacon report on the Irish hotel sector published in 2009, when news broke of another Bacon report being published today. Economic consultant and darling of the previous political administration, Dr Peter Bacon has today produced a report on NAMA and the wider economy which is sure to generate some debate. The report is titled “A Contribution to the Debate on National Economic Recovery” and is available here.
The fact that immediately raises eyebrows is the report is commissioned by Treasury Holdings which is (a) supposed to be massively insolvent, according to NAMA and (b) engaged in numerous and colossal legal battles with NAMA. Of course, just because Treasury Holdings controls the purse-strings attached to this report doesn’t inherently take away from the report’s content but Peter Bacon’s standing may suffer from what would appear to be a curious patronising relationship. For those of you unfamiliar with Peter Bacon, he is an economist and economics consultant who is generally held in high regard – his report on the hotel sector mentioned above is typical of the well-researched and fairly incisive material produced by him and his company in the past. A separate report on asset management companies produced in 2009 was seen as giving the economic and academic green-light to the subsequent foundation of NAMA. His company is called “Peter Bacon and Associates” and I note that it is Dr Kevin Hannigan who is shown as the author on the PDF details of the report published today.
There might be some people who will claim this report is little more than a thinly-veiled attack on NAMA with added padding on the wider economy to give it a veneer of respectability, and some of those people might suggest Peter Bacon is nothing short of shameless for accepting a commission from an organisation that has colossal legal battles ongoing with NAMA, legal battles which appear to have personal overtones.
This morning’s report doesn’t call NAMA a bunch of poopy-heads but it does make comment and recommendations which might be considered unhelpful or indeed hostile by the Agency. This blogpost examines the NAMA elements of the report:
(1) The Bacon report had access to the Comptroller and Auditor General report published on 24th May, 2012. That report said “NAMA faces considerable challenges in achieving this income goal [of generating enough over its lifetime to breakeven on its loan acquisition and operating costs]” which is fair enough. This Bacon report says “it is hard to disagree with C&AG’s assessment that NAMA will struggle to meet its minimum target”. Hmmmm, the C&AG didn’t say quite say NAMA would “struggle” and indeed none of us has a crystal ball to foretell property prices in the second half of this decade. And it is general property prices that will ultimately determine NAMA’s final result – with residential property, NAMA has limited impact on this market, with commercial more so, but both property markets will depend on how the wider economy performs. It looks bleak in June 2012, but the hope is that Ireland can recover as it progresses through NAMA’s one decade life-span.
(2) I started to lose confidence in this report when it said “when combined with the intention of reducing its loans by 24 per cent by end 2013 it seems inevitable that NAMAs losses are set to rise – significantly, especially considering that credit availability in the domestic market for property is so poor.” NAMA will tell you it has already paid down €1.25bn of NAMA bonds and €300m of other debt and that it is presently sitting on a cash mountain of €5bn, or at least it will be if and when Bank of Ireland shareholders agree the Anglo Promissory Note “deal” on 18th June. So paying down €7.5bn in the next 18 months doesn’t look so daunting if you just need generate another €1.25bn in cash to add to your existing cash mountain of €5bn and €1.25bn already repaid. And remember the 25% debt pay-down by the end of 2013 is a NAMA internal target, the target “agreed” with the bailout Troika is to dispose of 25% of NAMA assets by the end of 2013, and on that score, NAMA has already approved sales of €9bn which if realized will mean that “agreed target” is met. So to meet this target should not mean a fire sale or suboptimal economic decisions by NAMA.
(3) The report says “In addition, the lender-borrower relationship, which is evolving, has become adversarial it would appear, in a significant number of cases. Such an environment is not conducive to achieving the maximum long term value for taxpayers. Where dispute is unavoidable it is recommended that mediation would be a more cost effective means of resolving issues in dispute rather than court proceedings and accordingly should be used where possible” No-one is suggesting here that the author of the report formed this view through anything other than the application of their own expertise, but there is a strong echo in the above statement and the recent statements by Treasury’s Ireland managing director, John Bruder who said “Or the third way is we collectively find an investor who is prepared to do a deal with Nama that Nama is prepared to agree and hopefully work with us with a view to getting us off their balance sheet.” The credibility of this report might have been strengthened if disclosure of the fact that its commission was from a company currently at extreme legal loggerheads with NAMA.
(4) The report recommends a review of NAMA and its strategy. It’s almost as if the author was aware of Minister for Finance, Michael Noonan’s announcement of such a review, which is in any case provided for in the NAMA Act and which must take place before the end of 2013. The report recommends that such a review will examine NAMA entering into “international joint ventures” – the report doesn’t identify any potential international partners by name, but – by happy coincidence, no doubt – Treasury was developing relations with CIM, Hines andMacquarie before NAMA decided to pull the plug in January 2012 and appoint receivers. The report suggest such joint ventures might be a means of managing its assets and also making the assets more liquid as interests in joint ventures might be more readily disposed of, if need be, compared with disposals of the underlying property.
(5) The report criticizes NAMA for both its approach to relationships with developers and for its lack of progress in restructuring the businesses with which it is dealing -“replacing one provider of debt finance with another will not result in any restructuring of balance sheets that would enable the long-term value of assets to be realised. Indeed, it is noteworthy that, after NAMA’s three years in existence, the C& AG notes that it has ‘completed relatively few loan restructurings’ never mind achieve an appropriate balance of capital liabilities, which includes equity. In addition, the lender-borrower relationship, which is evolving, has become adversarial it would appear, in a significant number of cases. “
The bulk of the report deals with the wider economic challenges facing the country and it provides a decent overview of the historical perspective, including in particular the housing market. There are diverse recommendations which range from forming a dedicated state-controlled mortgage bank to forcing banks to ‘fess up to the mortgage crisis.
But somehow, I got the impression that this report was aimed at NAMA and the lingering curiosity is why Treasury has philanthropically entered the macro economic research arena at this juncture. The suggestions that NAMA will “struggle” to break-even and should pursue international joint ventures are unlikely to be well-received at NAMA HQ.
This week, one of the NAMA v Treasury court cases, this one involving the so-called TAIL transaction was transferred to the Commercial Court division of Dublin’s High Court this week and is set to be “mentioned” again in October. It is one of the many pieces of litigation ongoing between NAMA and Treasury at present. NAMA is declining to comment on the report at this point.
NAMA Wine Lake 
“NAMA will tell you it has already paid down €1.25bn of NAMA bonds and €300m of other debt and that it is presently sitting on a cash mountain of €5bn”
Perhaps they should also mention they’ve increased their levels of debt. From Q4 accounts:
“The Group issued €1,294m of senior bonds during the period bringing the total issuances for the year to date to €2,044m. €755m was issued to Participating Institutions in respect of loans acquired during the period and €539m as additional consideration following the completion of due diligence of loans acquired as part of the “bulk transfer” in Q4 2010.”
My view on Bacon – it’s a case of he that pays the piper calls the tune.
So, commissioned by the FF developer friendly government, Peter Bacon first architects and promotes Nama. By all accounts the agency then becomes the greatest bailout vehicle for insolvent property developers ever made.
Then later, soon after Nama turns off the free money taps to developers, Peter Bacon is again commissioned by the greatest of these, Treasury Holdings, to write another report castigating Nama for its “adversarial” relationships with developers and recommending that it be sold off to parties as yet unknown.
“A Contribution to the Debate on National Economic Recovery”? I think a better title for this paper would be “Words from a Mouth”.
On the contrary. Bacon and associates strike me as a robust and healthy “Econo Reports While-U-Wait” operation. I for one would suggest no less than the best from such a league of gentlemen.
But all the same, I don’t think I’d be too quick to rely on their reports after this particular incident.
Amazing the amount of publicity secured on RTE – he has certainly brought home the bacon for Treasury. I assume he got paid OK.
Given the status of Treasury, if he’s smart he got paid up front.
I have read the sections on NAMA and far from being critical they would seem to be mere statements of fact.
The adversarial nature of the debtor/manager relationship is an unavoidable reality for most borrowers. It is driven by political and often personal motivation from within the Agency. All Bacon does is to state that the long term interests of the taxpayer are better served by a more amicable relationship. Rather than short selling of assets for whatever price, this would ultimately mean a better return. One area he avoids entirely is the refinancing of portfolios outside of NAMA if he was rubbishing it on behalf of his paymasters would this element of the Act not be honed in on?
It reads as a reasonable and measured series of suggestions for this unwieldy monolith!
Oh, is that all?! As if it were such a little thing. As if the Irish State squeezing bailed out developers for the money they actually owe was such an unreasonable and “adversarial” thing.
The developers should be chased for every penny. Every red cent that the people have been forced to hand over to fund their lavish lifestyles and ill-gotten profits. The Armani jackets on their backs should be taken and sold to pay the debt. They keep the charvet shirt.
That will lead Nama to the best return. Handing the agency over to a leveraged buy out by a grouping of developers and their friends will lead to no return at all. They’d ride into the sunset with the assets and leave the debts at the door of the State and Bacon knows this full well.
And what of those developers who seek to work with the Agency. To recoup as much as possible and move on with their lives?
Do you actually know on how the Agency works? Do you have day to day knowledge of what it’s like in there? Or of how they actually treat the borrowers? Or do you spout populist nonsense, without a reference point!?
Never mind the rule of law!
What laws did they break?
In your scenario all citizens are equal except the developer!
Even the Courts might find issue with that!
@OMF. As a maths aficionado, you should must be aware that derogatory rhetoric based on a hate filled rant that is not based on logic or fact is a waste of time.
First, not all of NAMA’s borrowers are developers, and not all developers are NAMA borrowers.
Secondly, not all developers had lavish lifestyles. Liam Carroll is an example of a developer who lived a simple life. And why do you think that the developers’ profits are “ill-gotten”. Maybe you could give an example of a developer’s ill gotten profits? The phrase implies criminality.
Charlie Haughey kept his Charvet shirt on (with a new Charvet tie) all the way to the grave – and he was not a developer.
The longer NAMA controls the domestic economy in Ireland and continues to stifles entrepreneurship, banking and credit – the more it will cost the Irish taxpayer.
Finally, as I have often repeated here, the developers did not lay their NAMA debts on the Irish people – the politicians and the DoF did that.
It should not be forgotten that if the more responsible Irish developers decided to walk away from their NAMA borrowings – it would leave the Irish taxpayer with much greater losses. Not the developers, they can take a holiday in the UK for a year – the Irish taxpayer (some of whom are developers, by the way). NAMA knows this and that’s why it keeps talking up the “co-operation” spin. It is self preservation.
At the coal face, nobody believes that there is co-operation. Least of all NAMA. But the phony collaboration continues – for the moment.
OMF
.That is not going to happen anytime soon.Taking the jackets off their backs-that is. The scene is being set for a sale though.
There is nothing that is new here. And Peter Bacon is a disaster. Ever since he started interfering in the housing market decades ago, we have had nothing but trouble. As an economist he should know that you leave the market to sort itself out.. It is only when politicians and economists get busy that problems start.
In relation to the report he just re-states the obvious.
NAMA will lose money (that has been forecast on here for the past 12 months at levels between €6 to €11 billion).
NAMA and its debtors detest each other at all levels – despite what NAMA might spin. There is no trust. And reluctant co-operation only extends until one gets the opportunity to “shaft” the other. He is right when he says that this is not a healthy working relationship conducive to recovering the maximum return for the taxpayer. You can’t have a working relationship with your executioner. And NAMA is not interested in achieving the maximum return – it just wants to make sales as quickly as possible. It is not into property or asset management – It doesn’t have the expertise for it. It wants to get the cash in and let the future look after itself.
As for the sale of NAMA itself – It is inevitable. And the buyer is likely to be Blackstone (you heard it here first!).
Saying that “The developers should be chased for every penny” now counts as a “hate filled rant” and “populist nonsense”? I suppose warnings on the budget deficit now count as hysteria too?
My views are strident, I admit. Given the state of the country, I feel I have a right to be. But your responses are hyperbolic. There is nothing wrong with justly criticising a class of people whose dealings and debts have bankrupted the country, and who worse still refuse to accept responsibility or pay their share of the burden. Indeed, it is out duty criticise them, openly and sharply, until the situation is rectified.
One behalf of whom?
You are too quick to forget just how close the property-banking complex was to the government of the day. Behind every major decision in the years 2008-2010 was a cadre of developers, bankers, and senior civil servants, influencing and directing government policy at every step. I would hold that Peter Bacon was a significant member of this advisory circle.
Now he advises the government again, this time explicitly on behalf of developers. I am deeply, deeply skeptical of this advise. I do not believe it is independent enough, or sufficiently divorced from the interests of Treasury Holdings, to be relied upon—let alone followed—by the government or Nama.
Above all, I would be very wary of this suggestion of selling Nama. Sell to who? Under what conditions? I recall the case of Larry Goodman in the 1990s, who left debts of over €300 million behind him in 1990, only to buy back his empire in 1995 for just over a tenth of that. I don’t think that should be allowed to happen in the Irish property sector, not while the state lies bleeding on the floor from the wounds inflicted by that industry.
I do not trust this report.
@OMF, I like your “hyperbolic” reference. Hard to keep maths out of life :-). However, some wag once wrote: “Small minds discuss persons. Average minds discuss events. Great minds discuss ideas. Really great minds discuss mathematics.” Making a general ad hominem attack on the NAMA developers demeans your status.
In relation to your question in response to my statement:
Finally, as I have often repeated here, the developers did not lay their NAMA debts on the Irish people – the politicians and the DoF did that.
“On behalf of whom?”
On behalf of the banks.
@OMF, BTW, The Nyberg report (the only government sponsored report into the banking collapse that we have to date) blames everyone EXCEPT the developers and paints a picture of a country obsessed by greed.
Peter Nyberg, a senior official with Finland’s ministry of finance, compiled the 100-page report, which accuses the Irish banks of adopting a “herd instinct” to compete in irresponsible loan-making. The financial regulator, the politicians, the department of finance, the bankers, the auditors and the media all bought into a culture of “let the good times roll” despite signs of an imminent collapse.
I’m not saying that the Nyberg Commission was without flaws. I know a few of the supporting Irish banking advisors to Nyberg and would not rate them at all highly- but it is all we have as an “unbiased” report.
Click to access Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf
http://www.thejournal.ie/nyberg-report-irish-banks-corporate-governance-department-of-finance-123744-Apr2011/
http://www.guardian.co.uk/business/2011/apr/19/nyberg-report-into-irish-banking-collapse
Just do the “math” at what point does it become vengeful,small minded and a complete waste of resources.
The grandstanding by Frank on asset transfers,hiring private dicks,asset recovery specialists did not turn up much,now did it.
Its actually a very good report,unfortunately,somewhat tainted or diminished by its sponsor,but well worth a read.
Bring in some PE guys,people with skin in the game,shake the place up a bit,every time I read an Irish paper NAMA has lost another inmate!
The mind set needs to change to “partners” they overpaid for the assets,are rapidly running out of properties to sell,would a PE firm approve the Anglo bond stroke,we will find out from B of I and it’s shareholders.