[The transcript of the hearing is now available here]
The NAMA CEO and chairman, the owlish Brendan McDonagh and hawkish Frank Daly, appeared before the Oireachtas Committee of Public Accounts today to answer questions following the publication of a special report by the Comptroller and Auditor General in May 2012. The opening statement from Brendan is available here, the transcript of the hearing should be available early next week and will be linked to here.
I’m afraid I have just dipped in and out of the hearing which was broadcast live, and there doesn’t appear to be much new for the audience on here. I see the fact that NAMA is liaising with the Gardai over non-disclosure of assets by one developer is making headlines, but that was covered in depth on here a month ago.
The opening comments from Brendan do contain some new information
“The report has been interpreted by some commentators as implying that we paid more for the loans than we ought to have done. I reject this categorically. The report refers to the State Aid component of the NAMA Scheme which was €4.96 billion by reference to the first five tranches and which proved ultimately to be €5.6 billion for all tranches. The report points out that NAMA, under the Act, had discretion to pay a price for loans which was less than their long-term economic value. The reality is that the State Aid is a function of the discount rate used: the EU-approved discount averaged just over 5% whereas, in an open market, buyers would have discounted the loans at a rate of about 15%.”
Brendan might want to acquaint himself with the meaning of the word “categorically” because he seems to be conceding himself that NAMA paid more than the assets were worth. I am not aware of any commentator suggesting NAMA used a methodology other than was agreed with the European Commission for the acquisition of loans. But the state aid – confirmed now at €5.6bn following due diligence on all €32bn of loan acquisitions – represents the difference between what NAMA paid for the loans and what the loans were worth on the open market.
After the recent additional capital injection of €1.3bn into Irish Life and Permanent which brings to €4bn the amount given to that organization, we have now injected €64.1bn directly into the banks and we learn today that NAMA has given them €5.6bn of state aid, so to date, the bank bailout has cost us €69.7bn. That excludes any additional losses that will be made by NAMA and any additional capital requirements though on the other side it excludes the bank guarantee fees paid by the banks, and the residual value of our shareholdings in the banks.
NAMA Wine Lake 
@NWL
The address by NAMA CEO,Brendan McDonagh, is extremely disappointing, disspiriting and goes to the very heart of what is wrong with NAMA. Let us consider a few of the more prominent statements from the CEO.
1.
“We have to remind ourselves at this point that the purpose of the NAMA Scheme was, first and foremost, to provide State Aid to participating institutions.”
This is a most selective, biased and incorrect interpretation of the purposes for which NAMA was set up. A link to a previous post by Namawinelake allows an objective reader to consider the above statement made by the CEO when compared to the what the legislation gives as the ‘Purposes of the Act’.
https://namawinelake.wordpress.com/2012/07/05/what-is-namas-purpose-again/
2.
There is no defence of the virtually insane NAMA policy of paying down bonds before those bonds are due. Instead we have the CEO congratulating himself on the achievement of meeting “our initial target”.
“Our strong cash position enabled us to redeem another €2 billion of our Senior Notes last week bringing the total redeemed to date to €3.25 billion. We are well on the way towards meeting our initial target of redeeming €7.5 billion in Senior Notes by the end of 2013. The Board, following a recent review of strategy, has recently re-affirmed its confidence that NAMA remains on course, at minimum, to redeem by 2020 all the Senior Bonds issued as consideration for its acquired loans.”
Who is ‘our’ in this self-congratulatory paragraph. Who has dictated this policy? What is the reason for it? Are NAMA executive incentives tied to the achievement of the ‘our’ target? We need to know this.
3.
“Over 90% of Irish property under our debtors’ control is located in or close to counties with large urban centres of population (Dublin and neighbouring commuter-belt counties as well as Cork, Limerick and Galway).”
Now this is a surprise given that the biggest objections to a policy of completion of partially finished dwellings is the usual glib remark.
‘Shure who would want to buy an apartment in Longford or Leitrim or some other God forsaken place’.
So those remarks are just to put people off. The reality is that 90% of properties are in or close to large urban areas.
There is no reason therefore not to embark on major projects of completing buildings. No reason other than of course NAMA’s self imposed target, driven for all we know, in the absence of any other explanation, by desire for bonus payments by NAMA staff.
4.
And finally the conclusion:
“Our ultimate success is very much tied up with the performance of the Irish economy, not least because a vibrant domestic economy means increased demand for the property assets which secure our loans.”
Again the objective of NAMA is not NAMA as in National Asset Management Agency, it is simply a statement that
“a vibrant domestic economy means increased demand for the property assets which secure our loans.”
So there you have it. NAMA first and it appears only priority is:
” increased demand for the property assets which secure our loans” . The first objective is Route1, sell the assets, the second objective is Route1A, give vendor financing to achieve Route1.
If National Assets should as partially completed houses or buildings fall into disrepair because they are not Rouet1 ready, that’s just tough.
Route1 is the way to go.
Route1 is also the best way to put and keep putting in our own pockets and the pockets of those who suckle at the teat of NAMA.
Who cares about the economy or what the legislation said about the purposes of the NAMA Act, Route1 is the way to go.
Brendan “speak” rejecting the contention that NAMA paid more for the loans than it ought to have done:
“The report points out that NAMA, under the Act, had discretion to pay a price for loans which was less than their long-term economic value. The reality is that the State Aid is a function of the discount rate used: the EU-approved discount averaged just over 5% whereas, in an open market, buyers would have discounted the loans at a rate of about 15%.”
Well that just about explains it all very clearly. Only a dumb idiot would fail to understand that!
A bottle of the best vintage claret for an interpretation in English!
PS…. Does that mean that the real open market discount on the loans should have been 15%, but that NAMA only discounted them by 5%? Is that not an overpayment? Or is the NAMA spin machine malfunctioning and issuing pure gobbledegook?
There was a rather odd exchange regarding loan valuations and the discount/premium they trade at.The discount off the face incorporates collection fees,the larger the discount,the more costs and management fees associated with collecting.
In other words “good” loans,high probability of collecting trade at closer to par.They mispriced them,hence,the weird exchange about Managemt Fees and collecting.