It seems utterly ludicrous and is certainly inconsistent, that Irish Bank Resolution Corporation is presently gearing up to sell €16bn of loans to the highest bidder, and in some cases, the sales will be to the original borrower who will walk away with a hefty discount, whilst at the same time, NAMA is proscribed by the NAMA Act from doing the exact same thing – selling loans and properties back to the original debtors if they are in default.
Minister for Finance, Michael Noonan has previously refused to estimate the loss to IBRC if it were to adopt the NAMA-style proscription and NAMA is unable to estimate the lost profit it is foregoing with the proscription on the flimsy pretext that, because NAMA will not deal with defaulting debtors, it has no idea what they would offer and consequently can’t quantify the loss!
Seriously, this is the finance minister of the State who is the 100% shareholder in IBRC and who controls NAMA.
The long standing position on here is that the loss of not dealing with defaulting debtors be estimated, and then if it is judged substantial, to remove the proscription. There is no point in cutting off your nose to spite your face.
This week, we learned in the Dail that the proscription at NAMA is pretty lightweight. We learned that although NAMA is proscribed from selling a property to the defaulting debtor – let’s call him “D” – NAMA can sell to anyone else – let’s call them “A”. But there is no restriction on “A” selling to “D”. So NAMA, which we own might lose out on a profit, but “A” which we don’t own won’t. You couldn’t make this stuff up!
It is understood from some buyers of NAMA assets that there is no explicit restriction on the further sale of the asset by the direct buyer from NAMA, but some direct buyers of NAMA assets believe there to be a “nod and a wink” position at NAMA, and should the direct buyers then sell on to defaulting borrowers, that NAMA will look unfavourably on this, and the direct buyer might find themselves cold-shouldered by NAMA in future. So although what Minister Noonan says below is true, the practical position is some direct buyers are concerned at retribution from NAMA if they do sell on to debtors.
It is long past time to stop this nonsense. It is either in our interests as a State that there be a proscription or that there isn’t. It is ludicrous to have a proscription at NAMA but at IBRC to have assets sold to the highest bidder, regardless of who they are. We need to quantify the lost profits at NAMA from this proscription, and debate whether the financial loss is worth the political benefit.
This is the full text of the parliamentary question posed by the Sinn Fein finance spokesperson Pearse Doherty together with the response from Minister for Finance, Michael Noonan:
Deputy Pearse Doherty: To ask the Minister for Finance if he will set out the safeguards that the National Asset Management Agency has in place to prevent loans which it sells to third parties being re-sold to the original debtors who might be in default of loans to NAMA..
Minister for Finance, Michael Noonan : I am advised by NAMA that when it approves the sale of any loan or approves the sale of any secured property by a debtor or receiver, it requires a confirmation that the purchaser is not connected to the relevant debtor. NAMA advises that the term ‘connected’ is widely defined to cover anyone acting on the debtor’s behalf. This is to ensure that the transaction can be truly considered to be at arm’s length.
Having ensured, as far as possible, that such primary sales are not made to the relevant debtors or to connected parties, NAMA advises that it has no legal right to intervene in any further future sales of the loan or property in question.
NAMA Wine Lake 
While some entities who buy stuff from NAMA might live with the uncertainty around whither they can sell to connected defaulting borrowers, large institutional buyers will not and I understand that some have walked away rather than sign undertakings that restrict a benefit to prior borrowers. Also how do you define defaulting? Most borrowers who transferred breached loan terms and as such were defaulting at some stage.