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Archive for July 20th, 2012

And speaking of the NAMA advisory board, you might have been reassured to learn last week at the Troika-less news conference with Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin, that the NAMA advisory board isn’t even sure if it is still required. Minister Noonan told the press conference

“There were things about NAMA that I didn’t like and there are things about NAMA that I still keep my eye on. But the appointment of advisors to the Minister under the Act was quite helpful. There was a review of NAMA carried out at that stage [presumably when the Board was appointed in March 2012] I met the advisors last week and they said to me “Do you want us to continue because we have been with NAMA all day and we actually think that the difficulties they had have been overcome and that they’re an effective organisation” “Yeah”, I said “I’d like you to continue. I need you at the end of a phone to give me advice, that I can have conversations that are based on the opinion of people who have experience in the property market, rather than personal opinon”

So although the NAMA advisory board mightn’t think it still has usefulness, Minister Noonan knows better and relies on it for “non-personal opinion” on matters based on their experience in the property market. So what experience do the trio in the advisory board have in property, and particularly, the Irish property market where NAMA has by far the biggest extant exposure?

In the Dail this week, the Sinn Fein finance spokesperson asked Minister Noonan for the qualifications and experience of the NAMA advisory board in Irish property. This is the full exchange:

Deputy Pearse Doherty: To ask the Minister for Finance the qualifications and experience of the National Asset Management Agency advisory board with respect to the Irish property markets.

Minister for Finance, Michael Noonan: I may remind the Deputy that the NAMA Advisory Group has been set up to advise me in the following areas:

– The strategy of NAMA.

– The appointment of directors to NAMA.

– The remuneration of senior executives in NAMA.

– Any further advice I may seek of them.

The Advisory Group was established under a Direction Order issued by me under Section 14 of the NAMA Act.

The group operates on an informal basis and reports directly to me. Each of the members of the group have specific and significant private sector experience.

The responsibility for the running of NAMA lies with the NAMA Board, as laid out in the NAMA Act 2009. There is no role for the Advisory Group in dealings with the stakeholders of NAMA other than through discussions with me in my position as Minister.”

Seems like a direct question, which goes to the heart of keeping the NAMA advisory board following Minister Noonan’s statements last week. The response omits reference to the direct question. But let’s see if we can improvise.

Frank Daly is a career civil servant, latterly in the Revenue Commissioners and no doubt has some recent experience of the Irish property market from his time chairing NAMA, but he is hardly the most qualified in the field. Denis Rooney is the Northern Ireland quango king whose business interests in Northern Ireland will no doubt have touched on property, but what experience or qualification does he have which would help him on this side of the Border? And lastly, career banker Michael Geoghegan has a lifetime of experience but practically none in Ireland.

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The NAMA advisory board which was created at the start of this year, and which comprises three people and which reports to Minister for Finance Michael Noonan, is a strange beast. Its three members are Frank Daly, the €150,000-a-year NAMA chairman who hails from Dungarvan but seemingly spends most of his time in Dublin, and Denis Rooney who mightn’t be familiar to some of you because he is Northern Ireland-based, and lastly, bred- if not born-Irishman Michael Geoghegan. Each of the three members is providing their time pro-bono and the advisory board meets four times a year.

So how much does it cost to hold four meetings, which presumably would be held in Dublin, though as many Irish families are discovering these days, contact might also be incorporeally-made over the Internet on Skype and the like? The board hasn’t been operating for a full year yet, but the budget for “hotel, travel and subsistence “ in 2012 has been revealed to be €40,000. So if you see a massive golden throne like the one shown above, being hauled through the streets of Dublin by an army of lackeys, then you might be safe in concluding that it’s just a NAMA advisory board member off to one of four meetings a year.

Deputy Pearse Doherty:To ask the Minister for Finance the budgeted costs for the National Assets Management Agency advisory board in 2012 and 2013; the broad headings of expenditure under which these costs will be incurred; if there is support being provided to the Board by his Department or other Government Departments which is not included in the Board’s budget, and set out the detail of any such support.

Minister for Finance Michael Noonan: My department has budgeted costs in the region of €40,000 to cover the hotel, travel and subsistence costs of the advisory group for 2012 and the cost budget for 2013 has not yet been completed. As previously advised, the members of the group operate on a pro bono basis. There is no other support provided or costs incurred by my department to, or on behalf of, the group.

I have agreed that the group will meet and report to me at least four times a year. I have met with the group on two occasions since it was established. It is also open to the Chair to contact me as issues arise. I expect the advisory group to play a valuable role and I can confirm that I am satisfied with the operation and progress of the group to date.”

UPDATE:  14th May, 2013. Minister for Finance Michael Noonan has confirmed that the running costs of the NAMA advisory board in 2012 were €23,000.

Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 224 of 23 April 2013, if he will confirm the budgeted and actual cost of the National Asset Management Agency advisory board in its first year of operation.

Minister for Finance, Michael Noonan: My department had budgeted costs in the region of €40,000 to cover the hotel, travel and subsistence costs of the Advisory Group for 2012, the actual cost of the group in the period was approximately €23,000. As previously advised, the members of the group operate on a pro bono basis.

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The regular audience on here will be familiar with the debate over the eventual financial out-turn at NAMA in 2020. Will the Agency break even? Will it make a €10bn loss? Might it even turn a profit? Truth be told, all we have is the current financial position at the Agency, plus informed views about the next couple of years and finally, our own bespoke crystal balls to tell us what will happen to NAMA’s various property markets as this decade progresses. But confronted with this great ignorance of the future, it might be foolhardy to bank on NAMA making a profit or breaking-even, especially if we have an opportunity to protect ourselves against potential losses now. But that, seemingly, is the position of the Irish government which has this week confirmed that NAMA is not forming part of currently-ongoing negotiations with the EU/ECB/IMF over the burden of debt generated by the national bailout of our banks.

The current financial position in NAMA is not totally clear. We know that NAMA overpaid for the €74bn of loans it acquired to the tune of €5.6bn – in other words, NAMA paid €32bn for €74bn of loans that would only have been worth €26bn on the open market. The €5.6bn overpayment is characterised as state-aid and it was always the plan that NAMA would overpay for the loans it was acquiring because it was supposed to be acquiring these loans at the bottom of the market. There is no suggestion that NAMA erroneously overpaid for the loans it acquired or that it deviated from the valuation methodology agreed with the European Commission (mind you, it would be nice if the European Commission would approve the remaining 60% of NAMA’s loan valuations).

NAMA incurred an accounting loss in 2010 of €1.2bn though it is seemingly about to declare next Thursday when it publishes its annual report, an audited profit of €0.2bn for 2011. The immediate outlook for NAMA’s main market, Ireland, is challenging with commercial property prices still falling – and NAMA acquired €9bn of Irish commercial property loans – though there seems to be signs of residential property stabilising in some areas  – NAMA acquired €3.5bn of Irish residential property loans. So NAMA is sitting on a loss of €1-5bn+ today depending on how you value its loans and the immediate outlook is challenging.  And remember that NAMA is running up substantial running costs – about €200m per annum plus the interest it must pay on its bonds of about €500m. Only 18% of NAMA’s loans are performing and this is set to decline further as quality performing assets are disposed of. So NAMA can’t just hope for inflation as a one-way bet, it needs to see price rises in excess of its own costs.

In 2020 when NAMA is scheduled to be wound down, the Agency is required to have repaid all its bonds or IOUs it used to purchase the €32bn of loans from the banks. If NAMA hasn’t generated enough cash, then it will be the NAMA banks – AIB/EBS, IBRC and Bank of Ireland – that will absorb any loss in the first instance. But since we  own 100% of IBRC and 99.8% of AIB/EBS and 15.1% of Bank of Ireland, it is the nation that will be on the hook for any loss. And just in case you think the minority shareholding in Bank of Ireland means we can escape these costs, remember NAMA’s losses will be allocated to the banks on the basis of the value of loans acquired, and Bank of Ireland represented 1/6th of NAMA’s loans. In other words, the State will bear almost all of any loss at NAMA.

So given our exposure to NAMA, the potential for large losses and the fact that the losses will have been incurred in addressing our banking crisis, mightn’t you have thought that these potential losses would form part of the current bank debt negotiations? In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan about this very issue. This is the full response.

Deputy Pearse Doherty: To ask the Minister for Finance in view of his recent statements regarding ongoing negotiations of the State’s bank debt with the EU; the consideration that has been given to seeking to limit the cost of any potential overall loss at the National Asset Management Agency; if he will confirm that the State’s exposure to NAMA forms part of the ongoing negotiations.

Minister for Finance Michael Noonan: NAMA has been tasked with maximising its return on behalf of the Irish taxpayer. NAMA recently reaffirmed its expectation that the Agency will recoup for the taxpayer the Senior Bonds in issue as well as recovery of its carrying costs and the working and development capital advanced to debtors in the course of its business.

NAMA’s Annual Report for 2011, which will be published this month, will make extensive information available on the Agency’s operations and will chart the substantial progress that NAMA has made towards achieving its core financial objective. NAMA has also, as the Deputy is aware, announced a significant programme of asset development and enhancement in Ireland over the period to 2016 and the availability of €2 billion in vendor finance for prospective purchasers of commercial properties controlled by its debtors and receivers. A number of other initiatives are being progressed by the Agency. These activities provide strong evidence of the measures being adopted by NAMA to ensure that it will meet its objectives under section 10 of the NAMA Act.

NAMA’s position is not under discussion in the context of the State’s current discussions on bank debt.”

So in other words, we hope NAMA will break even. But if it doesn’t we will have missed the window of opportunity apparently presented by the EU summit in June 2012. The senior figures in this current government might be long-retired by 2020, but the new generation will reap the consequences then, if not before, if we find that we are bearing billions of euros of losses related to the bank bailout which might have been avoided in 2012.

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