If you were to ask most people in Ireland what NAMA does, the response you would get is that it manages loans to developers – collects interest and principal repayments, provides additional lending to finish out developments, agrees rescheduled loan repayments – and in some instances, forecloses on the loans and sells the repossessed property. And that’s more or less correct, though it should be noted it is generally the receivers who sell foreclosed property which is presently worth more than €1bn. NAMA itself has only taken possession of €7m of property, mostly relating to personal guarantees. But there is an activity in NAMA that slips below most peoples’ radar – the sale of loans. And since 2010 until 31st March 2012, NAMA has sold a staggering €1.9bn of loans. This blogpost examines the issues and is based on information given to the Sinn Fein finance spokesperson Pearse Doherty by the Minister for Finance Michael Noonan in the Dail yesterday in response to parliamentary questions – the full exchanges are shown at the bottom of this blogpost.
Cast your mind back to September 2011 when NAMA sold loans that were given to Paddy McKillen’s hotel company. This has been NAMA’s single biggest transaction and NAMA is understood to have received €800m for the loans that had originally been extended to buy hotels. NAMA sold the loans to the billionaire Barclay brothers, David and Frederick who own the Daily Telegraph and the Ritz Hotel in London. Paddy wasn’t happy with the sale and he unsuccessfully fought a major court battle in London over the past year, which he has so far lost, though he has recently sought leave to appeal the decision. So NAMA’s biggest transaction to date has not been for the sale of any property, but it has been the sale of loans. Besides the Paddy McKillen loans, NAMA has sold loans with a nominal value of €1.1bn.
NAMA has made a profit of €90m on the sale of these loans. By profit, NAMA means a premium on what NAMA paid for the loans – remember NAMA acquired €74bn of loans for €32bn, and the €90m represents a profit on top of the €32bn element. It is understood in the case of Paddy McKillen’s loans that NAMA made a small profit, but NAMA has not disclosed the quantum.
Now here’s the bit that some people might find concerning. NAMA doesn’t do debt forgiveness to its debtors. The best it does is a 5-7 year agreement whereby the debtor works on the projects securing the loans, hands over all unencumbered assets to NAMA if there are personal guarantees, and if at the end of the 5-7 year period, NAMA is satisfied there is no more blood left in the stone, then it MAY write off any sum outstanding. But whilst NAMA won’t provide debt forgiveness, once NAMA sells a loan, it has no control over the behaviour of the buyer of the loan. So if Jim owes NAMA €100m and NAMA sells that loan to Acme Bank for €60m and then Acme Bank does a deal with Jim whereby Jim pays off €65m of the loan and then sees his slate wiped clean, then NAMA has no control over that transaction and seemingly washes its hands of the loans once they are sold by NAMA. Some might say this leads to debt forgiveness through the back door.
What the Minister won’t do is say if NAMA has a competitive sales process when selling loans below their nominal value. No seriously, that’s what the minister says. So Enda Farrell’s wife Alice Kramer’s old company, Ernst and Young is on the NAMA panel to sell loans. And should E&Y sell NAMA loans below their nominal value, the Minister won’t say if there will be a competitive tendering process. Seriously.
The Minister also won’t say what NAMA has received for the €1.9bn of loans that the Agency has sold. So NAMA might have bought this loans for €1.5bn and sold them for €1.59bn, making a €90m profit as reported by the Minister, but the Minister thinks revealing the €1.59bn or whatever the sales figure is would undermine NAMA’s commercial prospects. Seriously.
Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the procedure adopted by the National Asset Management Agency when selling loans under its control, so as to maximise the return to the taxpayer from such disposals.
Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm that the National Asset Management Agency does not sell loans under its control for less than the original book value plus accumulated interest to the point of disposal, unless there is a competitive bidding or tendering process.
Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm that the National Asset Management Agency has sold loans, or allowed loans to be refinanced out of NAMA, at less than the original book value plus accumulated interest to the point of disposal; and if it has, if the relevant debtor has obtained any financial advantage through debt forgiveness or debt write-down from these transactions.
Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the cash received by the National Asset Management Agency since its inception in respect of the sale of loans; the total original book value of the loans plus interest accruing to the point of disposal and the total NAMA acquisition value of the disposed loans..
Minister for Finance, Michael Noonan: I propose to take questions 179, 180, 181 and 182 together.
I am advised by the National Asset Management Agency (NAMA) that since inception to 31 March 2012 it has sold loans with a nominal value of €1.9 billion, and generated €7.2 billion in cash receipts from borrowers. (see page 3 of NAMA Quarterly Report, 31 March 2012 for additional detail)
The Agency advises that net profit on disposal of loans is recorded in its Section 55 Quarterly Accounts and in its year-end consolidated income statement. The cumulative amount to 31 March 2012 is €89.7m. These documents are available on the Agency’s website, http://www.nama.ie. The Section 55 Quarterly Accounts for the three months ending 30th June 2012 are currently being considered by Government and will be laid before the Houses of the Oireachtas in due course.
The Agency advises that in the case of a loan sale, it disposes of the entire par debt and that therefore the matter of debt compromise does not arise. For the debtor, the only change is that there is a new loan note holder. NAMA operates a phased an orderly programme of disposal of both assets and loans to achieve the best possible outcome for the taxpayer.
The Agency advises further that it has launched an active loan sales process, having recently established two sales advisory panels one for Europe and one for the US. NAMA’s objective in any loans sales transaction is to achieve the best outcome for the taxpayer. In this context, the disclosure of the additional information sought by the Deputy could adversely affect the Agency’s competitive position. Providing such information would be commercially counterproductive for the taxpayer as it would be of greatest benefit to potential loan purchasers.