One of the regular complaints received in confidence on here is about the cost of NAMA’s receivers. Typically the complainant is the developer who is shocked at the cost of the receiver which his business must pay, and that the receivership costs are a multiple of what the developer would have charged to undertake the work. Of course if NAMA had confidence that the developer could manage the business, it probably wouldn’t have sought the appointment of a receiver in the first place, and would have entered into a loan workout agreement with the developer. Plus nobody disputes the fact that trustworthy, established, experienced and expert receivers do not come cheaply with a typical share receiver costing €800 per hour and a property receiver €200 a hour. Today we learn that NAMA spent €5.7m on receivers in the first six months of 2012.
For those of you who recall the NAMA report and accounts for the first three months of 2012, you might remember that there were a few oddities with the accounts. Even though NAMA has an annual budget for legal expenses of €25m in 2012, it only spent a measly €23,000 in Q1,2012. You might also recall that NAMA had a budget for what it called “recovery/insolvency costs” of €33m but spent just €355,000 in Q1, 2012 on “portfolio management fees” which was assumed on here to be recovery/insolvency costs. On Tuesday this week in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan for answers to some of the curiosities in the NAMA Q1, 2012 accounts. The full exchanges are shown at the bottom of this blogpost.
We learn that NAMA did indeed only spend €23,000 in Q1, 2012 on legal fees which might inspire concern that the roving hoards of solicitors and barristers in Dublin 1 and 2 might need resort to chasing ambulances. NAMA says that it accrued for some legal costs in 2011 but given that NAMA prepares its accounts on an accruals basis, you would have expected accruals in Q1,2012 also. NAMA also says that it can recover some fees, but overall the news is good, the budgeted legal costs for 2012 of €25m are unlikely to be realised and NAMA believes the actual costs will be “significantly less”
We learn that NAMA does not in fact book any receivership costs in its own accounts. These costs are deducted from proceeds of sales at the companies to which the receivers have been appointed. However Minister Noonan has said that the receivership costs for the first half of the year come to €5.7m which is also substantially less than budget and on the basis of these fees representing 1.5% of the assets under management, it implies that receivers are managing €760m of assets (€5.7m / 0.015 * 2 halves of the year)
NAMA also spent a whopping €317,000 in Q1, 2012 on “administrative costs” which the Minister says represented “principally insurance premia, external project costs, bank fees and charges and sundry expenses”
NAMA has a history of getting its costs forecasting wrong. You might recall that, in its draft business plan in October 2009, NAMA originally planned to spend €2.6bn over its lifetime on costs; this was reduced to €1.6bn in its business plan published in summer 2010. Whilst lower costs are welcome, you would wonder if there are fundamental issues at NAMA when it comes to planning.
Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the reason legal fees booked during the quarter of €23,000 were so low compared with the annual budget for 2012 of €25 million; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: I am advised by NAMA that legal fees for the first quarter of 2012 are low relative to budget for a number of reasons. Some fees actually paid in the quarter related to legal work which was in progress at the end of 2011 and had been accrued in the Q4 2011 accounts. In addition, the budget of €25m for 2012 included prudent assumptions on potential litigation costs which have not to date emerged. In addition, some of the legal fees incurred by NAMA are regarded as recoverable from the debtor and do not form part of its administration expenses. NAMA’s expectation is that the outturn for legal costs in 2012 will be significantly less than the €25 million budgeted.
Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the reason the portfolio management fees booked during the quarter of €355,000 were so low compared with the annual budget for 2012 for receivers of €33 million.
Minister for Finance, Michael Noonan: Portfolio Management Fees relate to the ongoing costs of managing the acquired loan portfolio, including fees incurred for the review of debtor business plans together with other fees relating to its portfolio management such as fees for valuations, asset searches, insolvency advice and ancillary property costs.
Portfolio Management fees do not include costs relating to receivers appointed to NAMA debtors. These costs are deducted from proceeds realised from the receivership and disposal of the related property assets and, therefore, do not form part of NAMA’s administration expenses but will impact on the Income statement as gains or losses on realisations.
To end Jun 2012 receiver cost were €5.7 million.
Deputy Pearse Doherty: To ask the Minister for Finance following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, what the expense heading other administrative expenses which totals €317,000 for the quarter, relates to.
Minister for Finance, Michael Noonan: I am advised by NAMA that the expense category ‘Other Administrative costs’ comprises principally insurance premia, external project costs, bank fees and charges and sundry expenses.