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.
NAMA Wine Lake 
It is a “nonsense” Irish political policy to refuse to sell to the highest bider if that bidder is a defaulting debtor. The only reason put forward is that it offends the sensibilities of the public because they are carrying the loss. But that loss was imposed on them – not by the defaulting debtor,but by the politicians, when in September 2008 they chose to lay the banking on the shoulders of the Irish taxpayer. These were private commercial losses that were an issue between the banks, their bondholders and the banks’ borrowers. It should have been left to those three parties to sort it out between themselves. But, once again Government interference in the commercial area leads to a disaster.
The fact that most debtors have a growing realisation that government legislation ensures that there is no future for them in Ireland is indeed ensuring that most of them leave for the UK and further afield to seek a living. The consequence of this is that the people with the most “skin in the game” are turning their backs on the Irish property scene resulting in less competition with a diminution in interested buyers willing to pay for the assets that NAMA needs to sell.
Needless to say, as the Chairman of NAMA delicately suggested, there will be a cost to the taxpayer for all of this. That cost may not be evident in the sale of the prime assets and loanbooks in London, but when it comes to the sale of secondary and tertiary properties in the Irish market, it will become obvious even to Mr Noonan.
If he’s got the money to buy the property, he had money to pay off his debts. You could have forced him to pay the debt and gotten someone else in to buy the property, and now you’d have twice the money.
And before you go on about the money he’s using now being borrowed, what assets do you think these developer are using as collateral for their new loans? The very assets that were not taken off them during their “bankruptcies”!
There should have been a proper reckoning between the bank creditors and the developers. The state and the public should have left them to fight it out amongst themselves amidst the carcass of the banks, the deposits moved safely away beforehand.
Hi OMF, Money is an available commodity all over the world – except in Ireland :-). It is always looking for investment, and while it is difficult to persuade fund managers to invest in Ireland for development as opposed to prime investment projects, it can be done. An essential ingredient is a “platform” with local experience. That platform is generally a developer / property investor with “boots on the ground”. it is akin to the relationship between Green Property and BOSI run-off manager Certus. If NAMA want to rid themselves of the trash that the banks lent on, they are going to need the input of the local developers that borrowed to buy it – like it or not. It will happen in time, because the cost will be too high otherwise.
Yes, the same assets are used as collateral.
I agree with your last statement. Other than guaranteeing the depositors, the State and the public should have had no part whatsoever in this debacle. It should have been left to the borrowers, the banks and the bondholders to sort it out between themselves.
@WSTT, the nonsense is Min Noonan defending sales by IBRC which is 100% state owned and which has no proscription on selling assets to defaulting debtors, and NAMA which is practically 100% state owned which does, with its chairman making noises that it is costing the Agency money. And Min Noonan saying he sees no merit in examining the proscription.
@OMF
So, for example, if hypothetically John Fleming (bankrupted in UK Nov 2010, discharged Nov 2011) were to come to NAMA today with an offer of €10m for a development site in Cork. And the best NAMA could get from “the market” was €5m, then you think that NAMA should say “no, John, take your offer and be gone with you”. Fine, in which case, the taxpayer loses out on €5m. But if we lose out on €5bn though 1,000 such instances then should we still hav e the prohibition.
And where would John Fleming *hypothetically* get €10m? His wife to whom he made lawful transfers, his family (where many people get seed capital for business) or maybe even a bank which recognises that most of John’s problems in the past were due to a structural collapse in the property market.