For the general audience, this might be a bit of a narrow subject to start our “Noonan’s Day of Nonsense” but it really exemplifies the gibberish now being deployed by our Minister for Finance, Michael Noonan in dealing with matters in his brief.
In outline, the NAMA Act stops NAMA selling assets to defaulting developers. The prohibition is there for political reasons that we can all readily appreciate – it just looks unfair to see a developer whose losses on loans have been transferred to the shoulders of society generally, then going on to buy assets at a steep discount from NAMA and getting back in the saddle as if nothing had happened. At this point, people usually ask how a defaulting developer can afford to buy any asset, and there are plenty of answers, but for now, just imagine a developer who has gone off to the UK, obtained a 12-month bankruptcy and is now back with newly-earned money, or for a second example, imagine the developer is buying the asset with his wife whose independent wealth was lawfully unaffected by her husband’s loans.
Many of you might say the prohibition should remain, as that is the fair thing to do. And who knows, that might be right. But wouldn’t you like to know how much the prohibition is costing us. If, over NAMA’s lifetime, the State loses €2m as a result of the prohibition, we might say that was money well spent because it promotes a more cohesive society. But what if the State loses €2bn from the prohibition? Should that change our views?
But regardless of views, shouldn’t we at least know if the NAMA prohibition on sales to defaulting developers is costing us €2m or €2bn? Then, we can have a debate about the rational economics and the politics and effect on society.
When Minister Noonan was asked what the cost was to NAMA a couple of weeks ago, he replied
“As NAMA is not permitted to sell assets to borrowers in default, neither I nor NAMA are in a position to assess the potential foregone profit (if any) if NAMA were permitted to sell assets to borrowers in default.”
This despite the NAMA chairman last year saying
“It might not be popular to say it but, for example, the restriction in the Act which bars us from selling assets back to a defaulting debtor is a restriction that does not apply to any other body in the same business or space as us. I do not know if that will be a problem in future but it is something we must consider”
So, approaching the problem from another angle, in the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked Minister Noonan to estimate the cost of applying the prohibition to Irish Bank Resolution Corporation, a bank which we 100% own and which is winding down a loan book which is of the same order of magnitude as NAMA’s. Unlike NAMA, IBRC has currently no prohibition whatsoever on selling assets to defaulting debtors.
And this is the gibberish from Minister Noonan
“Any sale that does involve a bid from a connected party to the original borrower or to party with an existing equity interest is subject to elevated and multi-faceted governance approval processes. In all cases, the clear objective is to achieve the highest possible recovery.”
The Fianna Fail finance spokesperson Michael McGrath also broached the subject with Minister Noonan and asked if Minister Noonan saw merit in abolishing the NAMA prohibition on sales to defaulting debtors, to which the response was.
“I do not believe there is merit in such a course of action at this time as I consider it appropriate that NAMA has put procedures in place to deal with this issue.”
Our Minister for Finance, ladies and gentlemen!
The full parliamentary questions and responses are shown below.
Deputy Pearse Doherty: To ask the Minister for Finance in view of the fact that he is the sole shareholder in 100% of the shares in the Irish Bank Resolution Corporation, if IBRC allows defaulting debtors to buy back assets; if he will provide an assessment of the losses that IBRC would potentially incur if it were to prohibit the sale of assets such as loans and underlying security such as real estate property, to defaulting debtors..
Minister for Finance, Michael Noonan: I have been advised that it is not possible to compile the type of information requested by the Deputy. The overriding mandate of IBRC is to maximise the recovery of loans on behalf of the State and to wind down over time. It is Bank policy that the execution of any asset or loan disposals is conducted on a competitive open market basis and in accordance with prevailing market norms for the asset class and jurisdiction. An impartial process is assured through the appointment of independent professional agents or brokers to conduct the sales process.
I have been informed that the vast majority of asset and loan disposals are transacted with independent third parties. Any sale that does involve a bid from a connected party to the original borrower or to party with an existing equity interest is subject to elevated and multi-faceted governance approval processes. In all cases, the clear objective is to achieve the highest possible recovery.
Deputy Michael McGrath: if the National Assets Management Agency has requested a lifting of the restriction on it selling properties back to defaulting debtors; if he sees merit in such a course of action; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: NAMA has not requested a lifting of the restriction on it selling properties back to defaulting debtors. I do not believe there is merit in such a course of action at this time as I consider it appropriate that NAMA has put procedures in place to deal with this issue.