The regular audience on here will be aware of the faux concern previously shown for the legal profession, which followed the publication of the NAMA accounts for the first and second quarters of 2012 – only €23,000 was spent in Q1, 2012 on legal fees and although Q2,2012 was better for the legal fraternity with €887,000 spent on legal costs, it was still a drop in the ocean compared to the NAMA budget of €25m for legal costs in 2012.
And why has NAMA spent so little on legal costs? Doesn’t the Agency realize that hordes of Dublin solicitors and barristers might be reduced to chasing ambulances to replace expected business from NAMA, who else will pay their fees which, after Moscow’s, are the highest in Europe?
Minister for Finance Michael Noonan was asked about this worrisome state of affairs. And his reply in September 2012 was
“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.”
However, we find out this week that NAMA has in fact been spending many millions on legal fees this year. It’s just that the Agency has not been showing these costs in what would be considered the usual place in its financial statements – the profit and loss account. No, because the Agency has in the main been spending the money on lawyers who have in turn been dealing with NAMA’s lending to developers, what NAMA has done is assumed it will be reimbursed the legal fees and NAMA has been adding the legal fees to the developers’ loans which are shown in the balance sheet. No, seriously, that’s what NAMA have been doing. Not only that, because there is no breakdown of loans in the balance sheet, we have hitherto been unable to appreciate this phenomenon, or the extent of it.
And as for Minister Noonan and his “NAMA was being prudent with its assumptions”, it seems negligent of Minister Noonan to comment on just €23,000 shown as spent by NAMA on legal fees whilst ignoring €7.766m being incurred by NAMA and added by NAMA to loans owed by its developers. The analysis of €7.766m spent to date this year by NAMA is shown below:
NAMA’s real legal costs were revealed in a response from Minister Noonan to the Sinn Fein leader Gerry Adams this week. The response isn’t online, but is contained in this letter from Minister Noonan to Deputy Adams. The letter was previously reported in the Irish Examiner, though they failed to realize the significance of the revelation in relation to NAMA’s accounting or previous reporting.
NAMA Wine Lake 
They’ve spent more in Portugal than in Belfast.
Is this what I suggested in my comment on this post https://namawinelake.wordpress.com/2012/10/16/nama-reports-an-impressive-e222m-profit-after-impairment-for-first-six-months-of-2012/ ?
@Ahura, you were right! I honestly didn’t think the practice you suggested would have been material. Surely Minister Noonan, when asked about legal costs of €23,000 recorded in the P&L for Q1,2012 would have given an indication of amounts if such a practice was significant. And this week, we learn the practice is very significant indeed.
The imagination involved in some accounting practices would put Da Vinci in the ha’penny place.
The joke is that, in strict accounting terms, it is the right way, the fees MAY be recoverable. However, we’ll never know whether they ever were recovered. They can stay on the books as potentially recoverable and then be written off as bad debts.
@NWL
At the very least this is deceptive reporting by NAMA.
They will say that all costs will be recovered and of course they will, because the loan ‘cost’ will be deemed to be paid first from any amounts recovered on the loan.
So the net effect is that the legal costs, etc will be buried (hidden) in the residual loan loss figure.
If this is the standard of disclosure allowed by the C&AG office, we may as well spare ourselves the expense and disband it.
The above method of accounting brings into question the recoverable valuation of the loans, as priority costs are being added daily, which will reduce the recovered amount. Are NAMA deducting the above legal costs from the estimated loan recovery? If not, they should be.