tatler man nama

Busine ss

businessclinic

BLUFFER’S

TOGUIDE:

Much has been discussed NAMA Chief Executive Officer Brendan McDonagh
about the efforts and

merits of NAMA and yet,
almost seven years after
its inception, there remains
much doubt and debate
as to its usefulness. Here,
Domhnall O’Donoghue
outlines the machinations
of the whole enterprise and
examines if it has been folly

or fortune

5051 IRISH TATLER MAN

SINCE IT DOES NOT OWN PROPERTY, NAMA, IN ITS

‘‘CAPACITY AS A SECURED LENDER, FACILITATES
DEVELOPMENT VIA FUNDING FOR VIABLE
COMMERCIAL AND RESIDENTIAL PROJECTS UNDER
THE CONTROL OF ITS DEBTORS AND RECEIVERS

WITHCARTEIASTNEDA?MA AND WHY WAS NNOATMPAROOWPENRSTLYOANS,

NAMA, or the National Asset Management Agency to give it its jazzy According to its informative website, NAMA confesses to being
official title, took its first breath in 2009 as a part of a number of initiatives “an unusual corporate entity” in that, unlike most businesses which
spearheaded by our beloved government to address the catastrophic aim to expand, NAMA begins life with a very large balance sheet and
property crisis that wreaked havoc throughout the country at that time. strives to shrink it over time.

Simply put, NAMA functions as a bad bank. It was established to take “NAMA was set up to buy loans from three banks and two building
property-related loans off the balance sheets of five participating societies and get back as much money from these loans as possible,”
financial institutions – Bank of Ireland, Allied Irish Banks, EBS, Irish Life says the body’s press officer David Clerkin. “NAMA, therefore, owns
and Permanent and Irish Nationwide. NAMA then kindly provided them loans, not property.”
with government-guaranteed securities, which the aforementioned
institutions could use as collateral with the European Central Bank. Since it does not own property, NAMA, in its capacity as a
secured lender, facilitates development via funding for viable
“NAMA was constitutionalised to handle the wreckage of the banking commercial and residential projects under the control of its debtors
crisis,” explains Denis Bergin of Bergin Estate Agents. “In doing so, it and receivers.
acted like a coroner, dealing with dead bodies and other casualties
resulting from the banks’ delinquency.” NAMA IN NUMBERS

Bergin, who lays claim to 55 years’ experience as an estate agent, To date, NAMA has acquired a whopping 12,000 loans along with
expands by saying that even though NAMA was “never going to be 60,000 properties as security, estimated to be worth in the region
perfect”, it did the best it could under the circumstances. of €74billion. In return, it has divvied out a sizeable €32billion
in liquidity.
“When it began, it didn’t know all of the facts,” he explains. “It was
created in a hell of a hurry, in something of a fog. Even today, previously Overall, there is north of 800 NAMA debtors – with the agency
unknown facts are still leaking out – as they probably will continue to do directly managing the debts of the largest 180. The rest is managed by
so in 20 years’ time.” the participating institutions under delegated authority from NAMA.

businessclinic

This page, from left
to right:
Conor O’Kelly, Chief
Executive of the NTMA

NAMA Chairman
Frank Daly

Senior policy analyst
Dr Rory Hearne

HOW IS NAMA FINANCED? HOW DOES NAMA ACQUIRE
ITS LOANS?
Clerkin reveals that NAMA is entirely self-financing and, as a result, does
not require funding from the Exchequer. After the five institutions identify loans that are eligible for
acquisition, they provide NAMA with specific information, including
“NAMA issued bonds with a total value of 32billion to the five the lowdown on loan balances and details of the properties or other
institutions from which it bought loans,” Clerkin reveals. “It has already assets that had been pledged as security. Should there be any legal
repaid over 22billion of these bonds from cash that it has generated difficulties associated with the loan or underlying security, the
from its operations.” institutions are expected to give NAMA the heads up. The institutions
then provide NAMA with valuations of these properties.
NWAHMAAT STATRKUE?CTURE DOES
As one would hope, the information provided is then subjected to
With a tip of the hat to European accounting rules, NAMA is structured review by NAMA in what they describe as a “rigorous due diligence
in such a way that the debt it issues to purchase acquired loans is not exercise” – including a legal review of the title to the property.
treated as part of Ireland’s General Government Debt and thereby
affords the agency similar accounting treatment to bank support Meanwhile, NAMA sends in their own property valuers; the main
schemes in other EU member states such as France and Germany. factor which determines what NAMA pays for any particular loan is
the value of the property securing it. Generally speaking, if a property
Furthermore, in the summer of 2009, Eurostat, the statistical office securing a 100million loan is now worth only 60million, NAMA will
of the European Union, ruled that Special Purpose Vehicles or Entities, pay about 60million for the loan. Once satisfied, NAMA proceeds to
which were majority owned by private companies, would be regarded as acquire them from the individual institutions.
being outside of the government sector – so long as they met a number
of conditions, of course. They must be of a temporary duration, for WHAT ROLE DO THE DEBTORS PLAY?
instance, or established for the sole purpose of addressing the financial
crisis. Such criteria were the perfect fit for NAMA, which led it to As part of NAMA’s initial engagement with debtors, each debtor
establish an investment holding company – National Asset connection, as they are called, is required to undertake a
Management Agency Investment Ltd. comprehensive business plan process designed to assess its
commercial viability and its willingness to co-operate with NAMA.
A total of 51 per cent of the company’s shares are owned in equal
proportion by three private companies (Walbrook Capital, New Ireland Following assessments, NAMA then adopts three different
Assurance Co Plc and Percy Nominees Ltd, a nominee of Prescient strategies: support (58 per cent of connections), disposal (18 per cent)
Investment Managers), while the remaining 49 per cent is owned by or enforcement (24 per cent).
NAMA. However, under the shareholders’ agreement between NAMA
and the private investors, assets agency exercises a veto over decisions WHO IS INVOLVED IN THE
taken by the company. RUNNING OF NAMA?

WHAT IS NAMA’S RELATIONSHIP Like most organisations, NAMA has a board, appointed by the
WITH NTMA? Minister of Finance in this case, and just like a certain Steve McQueen
western, this one also comprises of a Magnificent Seven, including
NAMA operates under the aegis of the National Treasury Management the Chairman, Frank Daly. By virtue of their office, Brendan
Agency, which was formed some 19 years earlier to borrow for the McDonagh, NAMA’s CEO, and Conor O’Kelly, the Chief Executive of
Exchequer and manage the dastardly National Debt. All of NAMA’s staff the NTMA, also serve as members of the board.
are employees of the NTMA.
The principal responsibilities of the Board are extremely clear and
Akin to a mindful older brother, the National Treasury Management straightforward: it sets strategic objectives and targets, then
Agency also provides NAMA with business and support services, implements the appropriate systems and procedures to ensure that
including HR, IT, market risk, communications and the execution and these are met.
processing of hedging transactions.
The terms of office of board members range between three and
5253 IRISH TATLER MAN five years and no appointed member is eligible to serve more than

two consecutive terms. There are currently two vacancies on the board, necessity for rising rents and prices into the future (to provide a
should you be contemplating a career change. return on this investment).

Additionally, to guarantee plain sailing, the board has rather wisely As such, many quarters also suspect that these starter homes
established four statutory committees and two advisory committees to will not be affordable but simply an opportunity for NAMA to
assist in the discharge of its responsibilities. “maximise the return to Irish taxpayers on Nama’s secured assets”
– as its mission statement sets out.
HOW ACCOUNTABLE IS NAMA?
Since its genesis, a big argument against NAMA is that it is not
Thankfully, NAMA is subject to a high level of public accountability as beneficial to the Irish taxpayer as it would like to make out.
compared to other commercial semi-state bodies, reflecting the fact that Claims suggest that not only is the country losing billions from the
it is managing a significant financial exposure on behalf of the Irish sale of assets that are subject to sizeable discounts, but also when
taxpayer. it comes to renting and buying in Ireland – and, in particular,
Dublin – the Irish taxpayer is being side-lined. In reality, these
The NAMA Act makes the agency accountable in a number of ways, dealings only provide super wealthy investors with opportunities
including the tabling of an annual report and audited financial for massive wealth accumulation.
statements in the Houses of the Oireachtas.
LWOHSOERHSA?VE BEEN THE BIGGEST
FWOHRYTDHIEDPNR’TOWPEERWT YAIMTALROKNEGTERTO
STABILISE OR RECOVER? Aside from the institutions who are still in intensive care or, indeed,
gone the way of all flesh, Sheehan feels the biggest loser to emerge
According to Patrick Sheehan, chartered surveyor at Independent from this whole process is Ireland.
Valuations Ltd, NAMA acted like a “cushion” during the crash, and while
it was “brutal for many people, it worked”. “This country has lost a generation of risk-takers,” Sheehan
laments. “For the past ten years, this ‘can-do’ group of people are
He adds: “The Government had to do something – the market was in investing their time and energy into battling debt when instead they
freefall. Overall it has been succeeding, things stabilised as a result.” should be changing the face of Ireland.

Additionally, Clerkin reports that “NAMA decided not to sell Irish “If you hit the deck in the US, say, it is almost seen as a badge of
assets over the period 2009 to 2012 as market conditions were honour; in Ireland, you’re wiped out almost indefinitely. Our
unfavourable”. bankruptcy rules have improved but not enough. It’s why people like
Ivan Yates take off to the UK, where a person is released from
“Since 2013, it has taken advantage of more favourable Irish market bankruptcy after a year.”
conditions,” he argues. “NAMA’s sales strategy has been an important
factor in restoring confidence in the Irish property market.” WHAT IS THE MARKET CURRENTLY
LIKE FOR FIRST-TIME BUYERS?
WHAT ARE THE SUCCESS
STORIES? “Overall, the market is steady and stock is clearing,” Sheehan
reports. “We have reached the point where building and
NAMA states that it is always striving to provide homes for social construction is taking place again – and not just in Dublin but also
housing, making properties available for schools and other public uses. It in places like Dundalk and Navan.
also works closely with the IDA to identify suitable properties for
companies investing in Ireland, and agrees rent abatements with “But the main difficulty now,” he warns, “is obtaining equity on
businesses to support jobs. account of the new rules that the Central Bank has implemented. To
successfully receive a mortgage over 200,000, a potential buyer
An area of particular importance to NAMA is the provision of homes needs to provide 20 per cent of the property’s cost, which, for many,
for social housing. To date, NAMA has made an impressive 6,635 houses is an extremely tall order.
and apartments available through the Housing Agency to local
authorities and approved housing bodies. Furthermore, NAMA has “Take a young hairdresser from Drimnagh,” Sheehan says by way
recently approved funding for the construction or completion of of illustration. “She wants to buy a house that costs 200,000. She
numerous residential areas throughout the country, including Dublin, has to cough up 20 per cent of this total, which translates as
Galway, Meath, Kildare and Cork. 40,000. For many people in her position, obtaining that sum of
money is next to impossible and, as a result, they will be forced to
“NAMA is on course to make a 2billion surplus for the taxpayer over continue renting.
its lifetime,” Clerkin reveals. “This compares with predictions from some
commentators that NAMA would lose up to 8billion.” “Now, in certain families, there might be money available to loan
or gift their children, but for many, this simply isn’t the case.”
Clerkin elaborates by saying that NAMA will continue to “take
advantage of the current favourable market conditions” and references Sheehan notes that the current position that Irish people are
the announcement detailing a major funding programme that “aims to finding themselves in is the exact antithesis of that during the
deliver almost four million sq ft of new commercial space in the Dublin boom, when banks were offering 100 and even 110 per cent
Docklands and 20,000 new homes in Dublin and other areas of strong mortgages.
demand”.
“This 20 per cent rule was probably a knee-jerk reaction from the
According to Clerkin: “The residential programme will require total Central Bank but, nonetheless, it makes it extremely difficult for
funding of 5.6billion. The Docklands development programme will most people to get onto the property market resulting in the rental
require total funding of 1.9billion.” prices going through the roof.

HCRAISTNICASMIMA?FACED MUCH “Instead of paying 1,000 a month for a mortgage, that
hairdresser will be forking out 1,300 or 1,400 in rent.”
Absolutely, for instance, this recent Dublin Docklands announcement
that Clerkin favourably describes above. On paper, this might appear WHAT IS THE FUTURE FOR NAMA?
commendable and noble, however, some analysts – including Dr Rory
Hearne, a senior policy analyst with TASC – forecast that these homes NAMA will be wound up when the Minister for Finance determines
will likely be sold to international vulture funds who currently view the that its continued existence is no longer necessary. Staff employed
Irish property market as one of the most desirable in Europe. by NAMA are on fixed purpose contracts, which means that their
contracts will be terminated when the agency’s work is concluded.
This enviable status was illustrated by the 2015
PriceWaterHouseCooper Global Real Estate Index, which emphasised “In practice, NAMA is two years ahead of schedule in completing
the fact that Dublin is achieving “heightened interest as a property [aspects] of its work,” Clerkin insists.
investment centre, particularly from foreign investors”. As a result,
foreign investment is driving up prices and also locking in the Bergin agrees, explaining: “NAMA’s basket of assets is
diminishing and, soon, there will be little left to deal with or process.
I imagine that it will be wrapped up within five years.” ITM