NAMA faces challenges in clawing back €32bn toxic loans - watchdog
THE State's financial watchdog has questioned the value of hiring private detectives to trawl for developers' hidden assets, and warned that NAMA faces "considerable challenges" making back the €32bn it spent buying toxic property loans from banks.
The Comptroller and Auditor General yesterday published its second special report on NAMA. The C&AG is the state body responsible for budget discipline, and acts as auditor for the National Asset Management Agency.
In a lengthy report the C&AG backed many of the systems set up by NAMA to manage its sprawling property and loans empire.
The report welcomed an innovative scheme whereby rents paid on properties owned by NAMA debtors go into bank accounts monitored by the bad bank, even without NAMA taking control of the properties affected.
However, the C&AG says it believes NAMA paid significantly more for loans it acquired from six Irish banks than the assets are worth.
NAMA has so far paid €26.4bn to buy loans that the C&AG says are worth only €21.4bn -- around one-fifth less than the price paid.
"Overpaying" for loans is allowed under the rules establishing NAMA, because price is based on "long-term economic value" rather than market rates.
The 20pc gap, however, is a major challenge in terms of the agency's plan ultimately to break even, or return a profit.
NAMA will ultimately pay €32bn to buy €72bn of loans. The final prices for the last €6bn of loans have yet to be set.
The C&AG report highlights other challenges, including falling property prices and the reality that NAMA was structured in anticipation of an economic improvement that has failed to materialise.
Sales in Ireland are happening at 5pc below market prices when NAMA acquired its loans, the C&AG found. In the UK sales are being done above the acquisition price.
More worryingly NAMA failed to budget for the costs of managing properties when estimating the rental income from NAMA-linked property.
A sample of six borrowers looked at by the C&AG brought in rents around 26pc below NAMA's estimates, because of the failure to account for costs. It meant NAMA took in rents of €8m from the six in 2011 instead of the €10.5m it was expecting.
The report also raises significant questions about NAMA's ability to "pursue developers to the ends of the earth".
According to the C&AG, a NAMA pilot scheme to trawl for hidden assets may not be worth the costs involved.
Last year NAMA put together a panel of private detectives and asset recovery specialists. The intention was to carry out detailed searches into the wealth of every NAMA borrower, starting with an initial sample of nine developers.
However, a poor return on the initial sample has thrown the whole project into doubt.
Some hidden wealth was discovered, but the assets "were insignificant in value and not all would result in a benefit to NAMA".
In one case NAMA spent €75,000 to discover that one developer had four high value cars, a string of international properties and shareholdings and had transferred property to a spouse, but it was not clear how much if any of the assets NAMA could actually get its hands on.
Most searches were far less expensive including €15,000 that turned up land in Ireland, property abroad and two race horses, all debt-free, that NAMA may well be able to secure charges on.
Meanwhile, NAMA itself published its results for the last three months of 2011 yesterday.
The agency said it generated €1.7bn in cash from operating activities over the €1.6bn of debt. However the proportion of its loans that are performing well dropped from 21pc to 20pc.