Vincent Browne: Frank, how can you say you are absolutely confident? Surely, what you mean is that you hope, and the hope would be based on, that there would be a hope that there would be a recovery in property prices.
Frank Daly: That’s not hope Vincent. That is taking the same way any other business, the same way the State, the same way anybody will look at the economy, look at the assets it has, look at its projected cash flows, and do that on a very objective basis. That’s not hope.
VB: It is based on taking a guess on what property prices will be, and most of the guesses have been wrong. Property prices have gone down and down and down, year after year, and you’re saying now “aah, sure let’s hope things will turn round and everything will be fine”
FD: I think if you take a look at recent indices for property prices, and I acknowledge that there are no perfect indices but I certainly think that the level of decline has begun to bottom out. Now what I think you are glossing over is that there is another seven or eight years to go in NAMA, and in that seven years in aggregate, property prices recover by something like seven, eight, nine, 10% which is not an unreasonable proposal, remember recently the Central Bank indicated that property prices may have actually fallen below their economic level.
VB: And they were wrong, again, yet again.
FD: And the month before last, the CSO indices showed that prices were beginning to rise in Dublin for example.
VB: And the most recent indications are that they’re beginning to fall.
FD: You’re never going to get a V-shaped recovery in that.
VB: Never mind a V-shaped recovery. Even if you get a straight-line recovery, that’s an improvement on what is happening in the property market at present. To say that you are absolutely confident that you’ll get back more than what you paid for these assets, is like, misuse of words if you don’t mind me saying, Frank. What you mean is that you hope.
FD: No it’s not misuse of words. For you to say that I’m hoping is misuse of words. What I am saying is-
VB: “you’re not hoping”?
FD: What I’m saying is that based on our projections, our analysis, we are confident. And that’s an objective view of projections, figures, macros and not all our own. Looking at others.
After the launch of the NAMA 2011 Annual Report yesterday, veteran journalist Vincent Browne interviewed the NAMA chairman Frank Daly, at the NAMA HQ in Dublin – the interview forms part of last night’s Tonight with Vincent Browne available here. The hard-working people at thebroadsheet.ie have prepared a partial transcript of the 30-minute interview which is available here. The extract from the interview reproduced above is additional to the Broadsheet extract.
We learn that NAMA can be confident in its projections for the property market because … it has macros. For the spreadsheet-literate amongst you who have had the dubious privilege of coding macros on Excel, you are now probably rolling around on the floor laughing. Macros are little more than formulaic calculations and if we could design macros to accurately predict property prices, we’d all be billionaires.
The regular audience on here won’t really have learned anything new from the interview, which is not to say that Vincent didn’t try to push certain issues. But at this stage, the NAMA chairman could probably swat away most questioning in his sleep.
But whilst we didn’t learn very much, the interview has amusement value. For those of you wondering what NAMA spent €825,000 on in 2011 when it booked this sum for “lease improvements” in its accounts, you probably get an answer from this interview – they spent it on potted plants! Poor old Vincent and Frank look as if they’re in a jungle!
They may also have spent it on teensy-weensy nursery school chairs for their developers to sit in when they come in to negotiate deals with the Agency – psychological intimidation some might say. Vincent Browne was given such a nursery chair last night.
What is insidious was NAMA’s claim that property markets just need improve by 6-10% over the next eight years for NAMA to break even. This is rubbish. NAMA is running up costs at €200m per annum and needs pay interest of €500m on its bonds. NAMA generates about €400m per annum on its loans from debtors. So NAMA needs see an increase in property values of at least €300m per annum just to cover its costs. And the view on here is NAMA needs see an increase of closer to 24% (see NWL index above) AND cover its ongoing costs, before it will break even.
Elsewhere Frank says that the rate of decline in the property market is bottoming out! Note, he is not saying that declines are bottoming out, just the rate of decline is bottoming out. And in response to accusations that NAMA is a gravy train for professionals and that the Agency is supporting Croesusian levels of income for the professional classes, the hawkish Frank says “I hope they will say that we have beaten them down on fees over the past couple of years” Feeling reassured.
The programme also contains reaction to the NAMA Annual Report from Dr Constantin Gurdgiev and Gavin Sheridan at thestory.ie who has an ongoing freedom of information case against NAMA presently being heard at the High Court.
[Images above are screengrabs from Tonight with Vincent Browne broadcast on 25th July, 2012]