Recently on here, we looked at the annual report of AIB UK Loan Management Limited, which is the NAMA-like unit in AIB in the UK and which manages €5bn of loans compared with NAMA’s €74bn. There is a remarkable contrast between AIB’s accounts and NAMA’s with the latter swamped with foreign exchange gains and losses and revaluations of derivatives.
NAMA’s accounts are difficult enough to analyse in the first place with profit overstated by what appeared in the past to be overly optimistic accounting for interest income and impairments but understated by not including profit on disposals until a debtor connection is closed. I know this will sound convoluted to many of you, but suffice to say it is difficult for an accountant to evaluate NAMA’s financial performance. But let’s try.
Last week, NAMA published its unaudited accounts for 2012. We expect to get the audited accounts in June 2013, and in previous years the loss on impairments has leapt between the unaudited accounts and the final version. In 2011 for example, the impairment loss went from €800m in the unaudited accounts to €1,267m in the final audited accounts published in July 2012. In a parliamentary response last week, Minister Noonan said NAMA’s report would be published “in the next two months” so that would indicate June 2013, which means we might see NAMA questioned in the Oireachtas before TDs and senators repair to the beach.
(1) Profit. NAMA turned in a profit of €306m before tax in 2012, the tax charge was €75m and the profit-after-tax was €231m. This is up from €12m before tax in 2011, there was a tax credit in 2011 of €237m and the profit after tax in 2011 was €249m. So, why was profit before tax €294m better in 2012? The main reasons are impairments fell f
(2) Revenue. NAMA generated €1,387m in revenue in 2012, mostly interest on its loans. This compares to €1,283m in 2011. There was an increase in interest income despite the ECB trimming its main rate to 0.75% in July 2012. NAMA says that 100% of its interest income booked on its loans was received in cash. For those of you who followed the “Effective Interest Rate” saga on here before, that might give you some confidence that NAMA is not over-optimistically booking fantasy income. NAMA’s loans fell from €25.6bn in 2011 to €22.7bn at the end of 2012. And it is not immediately obvious on here why interest income increased in all these circumstances.
(3) Costs. NAMA created bonds in 2010 to buy the €74bn of loans from the banks. NAMA paid the banks €32bn for the loans with these bonds. Since 2010, NAMA has redeemed €4.75bn of these bonds using cash generated in its business. The interest charges in NAMA fell in 2012 to €496m from €512m in 2011. NAMA’s admin expenses in 2012 came to €119m compared to €128m in 2011 with the main reason for the decrease being “portfolio management fees” reducing from €16m in 2011 to €5m in 2012 – now these should be receiver costs but NAMA tells us that receiver costs are charged to the companies in which the receivers operate so it is unclear what these costs are.
(4) Cash. At the end of 2012, NAMA had €3.4bn on hand compared with €3.3bn at the end of 2011. NAMA has recently been required by Minister for Finance Michael Noonan to make up to €1bn of credit available to the special liquidation of IBRC, though that should be repaid. And NAMA is required to redeem another €2.75bn in bonds by the end of 2013 – which, with the €4.75bn redeemed to date will bring total redemptions to €7.5bn – because Minister Noonan unilaterally gave that commitment to the bailout Troika last year. NAMA is still generating significant cash so there should not be any immediate concern about its ability to provide investment funding in its projects.
(5) Impairments. NAMA estimated the value of its loans fell by €518m last year, compared with €1,267m in 2011. Both Irish residential and commercial property declined by 5-6% in 2012, which was less of a decline than previous years. UK commercial property fell 4% and residential property was flat. There is not a perfect correlation between property prices and impairment but there is a relationship and the smaller impairment might reflect a lower rate of decline, but the betting on here is the audited impairment will be around €700m.
(6) Salaries. Given the expected interest, you might have expected NAMA to produce salary costs and employee numbers but no, all we have is that NAMA paid the NTMA €36,890,000 in 2012 and the assumption in here is all of that related to staff costs for what would have been about 250 at year end. So very roughly, the average staff cost would be €147,560 which would include employer pension and PRSI costs.
(7) Disposals of loans and property. NAMA says it disposed of €2.8bn of assets in 2012. In 2011, NAMA “approved” disposals of €5.6bn but it says it did not sell any loans during that year. NAMA booked only €188m profit on disposals in 2012 compared to €550m in 2011. NAMA hasn’t indicated what the unrealized profit reserve was at the end of December 2012, remember that NAMA has an accounting policy of not recognizing profits on disposals until all of a specific developers loans are sold/refinanced/repaid.
(8) Non-performing loans were 82% by reference to par value (NAMA acquired €74bn of par value loans and paid €32bn for them). Although this is up from 80% at the end of 2011, it is the same as the previous quarter, which given that NAMA is disposing of what are widely perceived to be the better quality loans is impressive, if correct. However we don’t know the non-performing loans by reference to the original loan agreement and in the previous quarter these were 15%, so NAMA might be masking the deterioration by negotiating new terms and then classifying the loan as performing under the new terms.
(9) NAMA advanced €308m to borrowers in 2012 compared to €304m in 2011. NAMA says it has approved €1.7bn of advances to borrowers so far, but it not exactly clear where NAMA gets the figures to support its claim that it has advanced €1bn to date to its borrowers with the evidence being that it advanced €240m in 2010, €304m in 2011 and €308m in 2012.
When analyzing the accounts for 2012, one thing did strike me – we live in a society agonizing with the effects of the financial crisis, looking for people and companies to blame, and awaiting with trepidation the next dose of bad news; what struck me is that NAMA did quite well in 2012. Here is a brand-new agency of 250 people generating income of €1.4bn, which has a healthy cash balance and apart from the Enda Farrell affair has largely escaped scandal. Here is a company which generated €300m of pre-tax profits and certainly kept its costs within budget. It won its battle in London against Paddy McKillen, and kept its nose clean in a country where political interference is rife. There is not very much detail in the management accounts and we await the annual report which appears to be scheduled for publication in June 2013.