It’s been a bruising few years for the agency and it’s not over yet, writes Business Correspondent John Walsh.
When Nama was set up in 2009 it was dogged by controversy. There were plenty of commentators warning that the Government was creating a contingent liability that would sink the State.
In the intervening period it has never been far from the headlines. There have been high-profile legal spats against some of the most prominent property developers in the State.
Two weeks ago it announced that it could no longer provide taxpayer funding to Mount Carmel because the private hospital was insolvent.
Before Christmas, Nama chairman, Frank Daly and chief executive, Brendan McDonagh, appeared before the Oireachtas Public Accounts Committee on foot of a series of salacious stories about the agency that had dominated media headlines for over a week.
In an interview with the Irish Examiner Mr McDonagh said that because of the nature of what the agency does, it is going to attract a lot of criticism. “The reality is that this is a tough business. You are looking for assets back from people. You are asking them to do things they don’t want to do. People will make allegations. It is all part of the game.”
However, Nama has been successful in 89 of the 90 legal actions it has taken over the past four years and it has won 14 of the 15 cases taken against the agency, said Mr McDonagh.
One of the stories that prompted the PAC meeting was a complaint made by the developer Paddy McKillen to the gardaí that Nama had unfairly helped the UK-based investors, the Barclay brothers, to obtain his loans.
Mr McKillen cited email correspondence between a former Nama employee, Paul Hennigan and a representative of the Barclay brothers, Richard Faber.
Nama chairman, Frank Daly declined to comment on the case as court proceedings are ongoing. But he referred to the first case in London’s High Court when the judge commended testimony provided by Mr Hennigan. Mr McKillen lost that case.
The other subject up for discussion before the PAC was a claim made by ex-Nama employee, Enda Farrell, that Nama had deliberately undervalued loans when they were being transferred to the agency.
Mr Daly said the valuation process had been forensically overseen by the Department of Finance, PwC, the European Commission and the Controller & Auditor General’s office. None of them had found evidence to support Mr Farrell’s claim, he said.
Even though Nama legislation was passed in 2009, it took over 18 months to get the loans transferred from the banks. It paid €32bn for €72bn of property development and related loans. In hindsight it would have been better if the transfer of loans had been completed in a shorter timeframe, said Mr Daly.
“If we had to do it again we would have tried to accelerate the whole process, but it was almost impossible given the volume of loans going across, the level of engagement needed with debtors.”
Since its inception, Nama has redeemed €7.5bn of senior bonds. It is on schedule to redeem a further €7.5bn by the end of 2016 and make an overall profit by 2020, added Mr Daly.
On Friday it was reported that a consortium of Kennedy Wilson and Green REIT had paid just over €310m for the Central Park development in South Dublin. Nama had been guiding €250m for the development, although it declined to confirm the details of the sale.
Mr McDonagh said it would look to accelerate sales over the course of this year to take advantage of a rising market. In all he expects to offload roughly €5.5bn of assets this year.
However, this has created tensions with many of the agency’s debtors, he added. “A few years ago they would have been looking to sell but we didn’t want them to because values were too low and now they see property values rising and rent rolls increasing and they don’t want to sell. They think they will be able to re-finance themselves out of Nama.”
One of the concerns raised by property market analysts is that Nama was forced to sell the “crown jewels” in order to meet troika targets, which means that most of its remaining portfolio consists of low quality assets.
Mr McDonagh describes this as a “myth”. “The reality is 55% of our remaining assets are in Ireland and 45% are international. Of the Irish assets, 92% are located in Dublin, Cork and Limerick. They are in much better locations than people think.”
One property market professional based in Dublin made the point that as the property experts are lured from Nama by international firms setting up in Dublin, the agency was being overtaken by accountants and banking professionals who do not have a deep understanding of the property market. Consequently, the skills set needed to maximise the potential value of the remaining assets is missing.
Again Mr McDonagh refutes the claim. “We have teams of 10 managing our top 180 connections and there would be three property experts in each one of these teams.”
For much of 2011 and 2012 Nama was involved in a bruising legal battle with Treasury Holdings for control of among other assets, the iconic Battersea power station in London. The defence put forward by Treasury was that Nama was pursuing a vendetta against the company because of the high — and often controversial — profile of one of its founders, Johnny Ronan.
Treasury claimed that it has investors who were willing to work with it to develop Battersea. Instead of putting it into administration, Nama should have worked with the company, which would have delivered much more for the Irish taxpayer in the long run.
Mr Daly said that Treasury was insolvent at the time of the court case and there were no investors that could have developed the project. “The reality is that the site was bought by [the Malaysian sovereign wealth fund] Setia, but nothing has been built there yet. It will cost roughly £5bn to build out that site and it would take roughly 10 years to get the returns needed. That is longer than the lifetime of Nama.”
The Irish Examiner spoke to a debtor who is co-operating with Nama. He has property assets and an underlying operating company. He described as “frustrating” his dealings with Nama in relation to his operating company. Correspondence with the agency is slow and he finds it hard to make commercial decisions for his business.
Mr McDonagh says that if a debtor has not been reverted to in seven days then he will personally follow up to find out why. However, decisions about capital expenditure will take longer. “This will be longer than what these debtors might have been used to with their banks when decisions were made in 24 or 48 hours, but that was part of the problem in the first place.”
The next big challenge for the agency is taking over the assets of IBRC that are not sold by the end of this month. Mr Daly expects loans with a par value of between €5bn-€6bn to transfer.
Over the longer term Mr Daly and Mr McDonagh face the rather unusual proposition of taking the biggest property company in the world and literally running it into the ground and on the way doing what is best for the taxpayer.
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