Monday 25 September 2017

We can't rewrite history of the crash to blame Nama for latest property crisis

Nama has been criticised for selling off assets like Battersea Power Station in London too quickly, instead of holding out in the hope of larger return
Nama has been criticised for selling off assets like Battersea Power Station in London too quickly, instead of holding out in the hope of larger return
Richard Curran

Richard Curran

The National Asset Management Agency (Nama) is heading towards its twilight years. It is ahead of its target to pay back all of the €30bn it borrowed to buy assets from the banks. It is on target to make a profit of around €2bn.

Yet, we have a housing crisis, a bunch of broke property developers, vulture funds making a financial killing and banks that are improving but still remain relatively weak from the crash.

So, was Nama the right move and has it done its job effectively? The property industry doesn't believe it has. One developer, David Daly, has commissioned a report looking into how much money he believes the agency could have made for the taxpayer by managing assets differently and holding on to assets for longer.

Daly's report puts the figure at €18bn. He was speaking on RTE Radio One's Marian Finucane show last Saturday, where he went even further and blamed the agency for today's housing crisis.

Daly's analysis is quite simple. It was set up as an asset-management agency, but when it came to dealing with clients, he believes it didn't differentiate between developers in different circumstances; it told its clients to stop building houses; it forced developers to sell assets at knockdown prices and so it therefore contributed to the lack of housing today.

Daly's view is also coloured by the bitter experience of his own acrimonious dealings with the agency and what he believes was very unfair treatment.

On radio last weekend Daly recounted how he had a personal portfolio of loans with AIB which were transferred to Nama. These were secured on a range of commercial properties including the Bond Street London building which housed the Louis Vuitton store.

He said he never missed a payment and the rent role on this portfolio was more than enough to cover interest payments.

Separately he had bank borrowings with Bank of Ireland on his Albany Homes housebuilding business.

Nama sought to appoint receivers to his personal portfolio where the borrowings were around €450m despite him remaining up to date on his payments.

After a High Court battle in which Daly challenged Nama's right to appoint receivers to the commercial property companies, a settlement was reached between both sides, which saw Daly sell-off a number of prize assets and repay those debts in full.

Daly is deeply aggrieved that he was forced by Nama to liquidate assets he had spent a long time building up. But most of his ire is reserved for Nama's approach to his housebuilding business, Albany Homes. When he entered Nama he did up a business plan, which he said was ignored by the agency. Whether it was ignored or not, the agency rejected it and didn't run with it.

Daly argues that Nama told all developers to stop building houses. This meant that housebuilding completely stopped and on the back of it. Daly blames the agency for today's housing crisis and shortage of building.

Here are some of Daly's main criticisms of Nama:

1. It told developers to stop building houses.

Nama rejected developer business plans in many cases because it would have involved lending the developer more money. Back in 2010 house prices had collapsed and banks would not lend any money to build more houses. So it fell to Nama to provide the cash to complete housing projects.

From Nama's point of view, how could it lend substantial amounts of money to developers, who already owed it hundreds of millions in some cases, to build houses which were falling in value? Politically even, it would never have been allowed to lend the sums needed to complete projects.

However, Daly makes the point that his sites were in the wider Dublin area, not in rural Leitrim. These are the very same places in which houses are now badly needed. He argues that Nama failed to differentiate between developers and their financial positions.

Looking at accounts from the period for Albany Homes, he has a point when it came to his own business. In the 12 months to September 2009, Albany group saw turnover collapse from €95m to €28m. However, on a trading level it still managed to generate a trading profit of €183,000 and positive cashflow of nearly €1m. Very few Irish builders were managing the crash as well as that. After taking a big write-down on the value of its assets, it still had shareholders funds of €67m in 2009.

If Nama had backed Daly, it would not have lost money on him. However, the same cannot be said for all builders and the agency was dealing with 850 developers many of whom were not bankable by anybody.

2. Nama caused the housing crisis?

This does not stack up. It is a criticism borne out of hindsight. In 2011 estate agent Saville produced a report suggesting that no major speculative house building development would take place for the next five to seven years.

The property experts were predicting that nothing of any significance would happen until 2016 or possibly even 2018. This was the climate of the time.

The analysis that simply blames Nama for today's housing crisis ignores the role played by developers themselves, as well as the banks, government policy failure and the fact that sheer greed by some drove the industry off a cliff.

Daly told Marian Finucane that our forefathers would be turning in their graves at the sell-off of Irish assets to international funds, which he said was the biggest land ownership transfer since the Plantation. Equally, one could argue they would turn in their graves at the scale of our financial collapse in 2008 and the loss of economic sovereignty caused by property players, bankers, bank regulators and politicians.

3. Nama was supposed to be an asset management agency not simply an insolvency agency.

The problem here is that Nama was set up in a hurry and expected to a bit of everything. The longer it took to manage assets, the longer the state carried the risk of having €30bn more of debt on its books. Getting rid of those debts quickly through sales, generated international interest in Ireland and reduced the risks of carrying Nama debt for too long.

However, where Daly is right, I believe, is in not finding a middle ground between those two positions. If it managed assets, it might have got better prices on the upturn. Managing assets means carrying risk for longer.

Nama has been criticised for selling assets like Battersea Power plant in London too quickly. If it had hung on and developed it, the State might have got a bigger return.

But in truth, it would have meant financing that project to the tune of hundreds of millions, if not billions, and what if it went wrong. What if there was another Lehmans along the way? The State would have been further exposed.

Equally, Ireland was so bad in 2010, that Nama had to sell better UK assets first, to try and get some money in.

4. Nama ensured the banks couldn't lend by not paying enough for the loans it bought.

What the banks did, they did to themselves. If Nama had paid €50bn instead of €30bn what difference would it have made to the banks? Would they have lent money into a broken economy? I don't think so.

And paying an extra €20bn would have seen taxpayer money being used to further subsidise banks. Nama took several billion in write-downs on its assets after it bought them suggesting it actually underpaid for them.

Daly has a powerful story to tell and a perspective that is worth hearing. It challenges a consensus view that Ireland handled the crash with first-class honours.

Nama was too big, too secretive and I have no doubt has made commercial mistakes and misjudgements along the way.

But we cannot use today's housing crisis, 20/20 hindsight vision and Ireland's recent economic recovery to re-write the history of the crash.

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